Question
In: Finance
The three-month dollar interest rate in New York is 3% per annum. Alternatively, the three-month euro...
The three-month dollar interest rate in New York is 3% per annum. Alternatively, the three-month euro interest rate in Frankfort is 5% p.a. The current $/€ spot exchange rate is $1.1340/€. The euro three-month forward rate is quoted at $1.1326/€.
- Show how a U.S. arbitrageur would exploit a possible covered interest arbitrage opportunity with a nominal $80,000,000. Don’t start with the formula. Explain in your own words the transactions the arbitrageur would execute and calculate the profit/loss the arbitrager would make or face.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
The three-month dollar interest rate in New York is 3.80% per annum. Alternatively, the three-month euro...
The three-month dollar interest rate in New York is 3.80% per
annum. Alternatively, the three-month euro interest rate in
Frankfort is 5.40% p.a. The current $/€ spot exchange rate is
$1.1220/€. The euro three-month forward rate is quoted at
$1.1210/€.
Use the International Fisher Effect (IFE) to find what should
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the euro (If not performing chain calculations, use interest rates
up to four decimal places, and again use the proper...
Suppose that the Euro-denominated interest rate is 1.5%, the dollar- denominated interest rate is 1%, and...
Suppose that the Euro-denominated interest rate is 1.5%, the
dollar-
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1.42 dollars per
Euro. What is the 6-month forward exchange rate in Vancouver (i.e.,
C$ per 1
Euros)? What is the 6-month forward exchange rate in Milan (i.e.,
Euros per 1
C$)? [Assume that interest rates are annualized and continuously
compounded.]
Suppose that the six-month interest rate in the United Kingdom is 0.5% per annum the sixmonth...
Suppose that the six-month interest rate in the United Kingdom
is 0.5% per annum the sixmonth interest rate in Germany is 1.2% per
annum. If the spot exchange rate is GBP/EUR 1.1286 and the
six-month forward exchange rate is GBP/EUR 1.1312. Assume that the
arbitrager can borrow up to EUR 1,000,000 or the equivalent GBP
amount, at the spot rate.
a. Can the arbitrager make a covered interest arbitrage (CIA)
profit, justify your answer?
b. If yes, determine how much...
Suppose that the six-month interest rate in the United Kingdom is 0.5% per annum the sixmonth...
Suppose that the six-month interest rate in the United Kingdom
is 0.5% per annum the sixmonth interest rate in Germany is 1.2% per
annum. If the spot exchange rate is GBP/EUR 1.1286 and the
six-month forward exchange rate is GBP/EUR 1.1312. Assume that the
arbitrager can borrow up to EUR 1,000,000 or the equivalent GBP
amount, at the spot rate.
a. Can the arbitrager make a covered interest arbitrage (CIA)
profit, justify your answer?
b. If yes, determine how much...
Suppose that the six-month interest rate in the United Kingdom is 0.5% per annum the sixmonth...
Suppose that the six-month interest rate in the United Kingdom
is 0.5% per annum the sixmonth interest rate in Germany is 1.2% per
annum. If the spot exchange rate is GBP/EUR 1.1286 and the
six-month forward exchange rate is GBP/EUR 1.1312.
Assume that the arbitrager can borrow up to EUR 1,000,000 or the
equivalent GBP amount, at the spot rate.
a. Can the arbitrager make a covered interest arbitrage (CIA)
profit, justify your answer?
b. If yes, determine how much...
Suppose the U.S. dollar-euro exchange rate is 1.1 dollars per euro, and the U.S. dollar-Mexican peso...
Suppose the U.S. dollar-euro exchange rate is 1.1 dollars per
euro, and the U.S. dollar-Mexican peso rate is 0.1 dollars per
peso. What is the euro-peso rate?
____ euros per Mexican peso. (Enter your response rounded to
three decimal places.)
A spot exchange rate for the Euro / U.S. Dollar is 363.00 £/$.What’s the 1-month...
A spot exchange rate for the Euro / U.S. Dollar is 363.00 £/$.
What’s the 1-month forward mid-rate ( £/$) when the quotes are an
ask of -325? bid of -125?
Assume that the spot rate for RM per dollar is RM4.1245 - RM4.1256/ $, 3 month-...
Assume that the spot rate for RM per dollar is RM4.1245 -
RM4.1256/ $, 3 month- forward rate is RM4.1268 - RM4.1284/$
1. Calculate forward premium or discount for USD
2. Calculate forward premium or discount for RM
If the effective interest rate is 20% per annum, What is the nominal rate if it...
If the effective interest rate is 20% per annum, What
is the nominal rate if it is:
a. Compounded daily (360 days)
b. Compounded daily (365 days)
c. Compounded weekly
d. Compounded monthly
e. Compounded quarterly
f. Compounded semi-annnually
g. Compounded annually
An interest rate is 6.75% per annum with continuous compounding. What is the equivalent rate with...
An interest rate is 6.75% per annum with continuous compounding.
What is the equivalent rate with semiannual compounding?
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