Question

In: Finance

Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest...

Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest

​$5

​million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change.​ (Note that anytime the difference in interest rates does not exactly equal the forward​ premium, it must be possible to make CIA profit one way or​ another.)

Arbitrage funds available

$

5,000,000

Spot exchange rate (kr/$)

6.1723

3-month forward rate (kr/$)

6.1976

U.S. dollar annual interest rate

4.000

%

Danish krone annual interest rate

4.900

%

Solutions

Expert Solution


Related Solutions

Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest...
Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$4.9 ​million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change.​ (Note that anytime the difference in interest rates does not exactly equal the forward​ premium, it must be possible to make CIA profit one way or​ another.) Arbitrage...
Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest...
Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$5 ​million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change.​ (Note that anytime the difference in interest rates does not exactly equal the forward​ premium, it must be possible to make CIA profit one way or​ another.) Arbitrage...
Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest...
Copenhagen Covered​ (B). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest $4.9 million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change.​ (Note that anytime the difference in interest rates does not exactly equal the forward​ premium, it must be possible to make CIA profit one way or​another.) Arbitrage funds...
Copenhagen Covered​ (A). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest...
Copenhagen Covered​ (A). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$4.9 ​million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. Using the following​ quotes, can Heidi make a covered interest arbitrage​ (CIA) profit? Arbitrage funds available $ 4,900,000 Spot exchange rate (kr/$) 6.1719 3-month forward rate (kr/$) 6.1984 U.S. dollar annual interest rate 2.950 % Danish krone annual interest rate 5.100 % The CIA...
Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$5 million, or...
Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$5 million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. Using the following​ quotes, can Heidi make a covered interest arbitrage​ (CIA) profit? If yes, then find the arbitrage profit in dollars. Clearly indicate the steps needed to take to realize the arbitrage profit. (Please note that the interest rates are quoted in annual terms, and that...
Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$5 million, or...
Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$5 million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. Using the following​ quotes, can Heidi make a covered interest arbitrage​ (CIA) profit? If yes, then find the arbitrage profit in dollars. Clearly indicate the steps needed to take to realize the arbitrage profit. (Please note that the interest rates are quoted in annual terms, and that...
eidi? Høi Jensen, a foreign exchange trader at J.P. Morgan ?Chase, can invest ?$5 ?million, or...
eidi? Høi Jensen, a foreign exchange trader at J.P. Morgan ?Chase, can invest ?$5 ?million, or the foreign currency equivalent of the? bank's short term? funds, in a covered interest arbitrage with Denmark. Using the following? quotes, can Heidi make a covered interest arbitrage? (CIA) profit? Arbitrage funds available $ 5,000,000 Spot exchange rate (kr/$) 6.1719 3-month forward rate (kr/$) 6.1977 U.S. dollar annual interest rate 3.000 % Danish krone annual interest rate 4.900 % The CIA profit potential is...
David Jensen is a foreign exchange trader with Citibank who has access to $2,000,000 US or...
David Jensen is a foreign exchange trader with Citibank who has access to $2,000,000 US or the UK pound (GBP) equivalent. He notices the following US dollar (USD) and UK pound (GBP) foreign exchange and interest rate quotes: Spot exchange rate USD 1.2490 /GBP Six months forward exchange rate USD 1.2535 /GBP Expected spot exchange rate in six months USD 1.2610 /GBP Six months $ interest rate 2.2% per year Six months GBP interest rate 1.4% per year Required: In...
Kavita Raman is a foreign exchange trader for a bank in New York. She can borrow...
Kavita Raman is a foreign exchange trader for a bank in New York. She can borrow $1 million (or its Swiss franc equivalent) at her disposal for a short term money market investment. Kavita wonders whether she should make an uncovered interest arbitrage (UIA) transaction. She faces the following quotes: Assumptions Arbitrage funds available $1,000,000 Spot exchange rate (SFr/$) 1.2810 3-month forward rate (SFr/$) 1.2740 U.S. dollar 3-month interest rate 4.800% per year Swiss franc 3-month interest rate 3.200% per...
Casper​ Landsten-UIA (B).   Casper Landsten is a foreign exchange trader for a bank in New York....
Casper​ Landsten-UIA (B).   Casper Landsten is a foreign exchange trader for a bank in New York. Using the values and assumptions​ below, he decides to seek the full 4.804​% return available in U.S. dollars by not covering his forward dollar receiptslong dash—an uncovered interest arbitrage​ (UIA) transaction. Assess this decision. Arbitrage funds available $ 950,000 Spot exchange rate (SFr/$) 1.2811 3-month forward rate (SFr/$) 1.2742 Expected spot rate in 90 days (SFr/$) 1.2697 U.S. Dollar annual interest rate 4.804 %...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT