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 3 months 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
be the expected three-month spot exchange rate of dollars against
the euro (If not performing chain calculations, use interest rates
up to four decimal places, and again use the proper...
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
A New York City Bank expects the exchange rate for the euro to appreciate from the...
A New York City Bank expects the exchange rate for the euro to
appreciate from the spot rate of $0.60 to $0.65 in 90 days. The
Bank is able to borrow $15 million or 25 million euros. The short
term interest rates (annualized) in the interbank market are as
follows:
CURRENCY
LENDING
RATE
BORROWING RATE
U.S
Dollars
6.72%
7.2%
Euro
6.48%
6.96%
(a)How will this bank attempt to capitalize on this expected
change in exchange rate to make a speculative...
)A New York City Bank expects the exchange rate for the euro to appreciate from the...
)A New York City Bank expects the exchange rate for
the euro to appreciate from the spot rate of $0.60 to $0.65 in 90
days. The Bank is able to borrow $15 million or 25 million euros.
The short term interest rates (annualized) in the interbank market
are as follows:
CURRENCY
LENDING
RATE
BORROWING
RATE
U.S Dollars
6.72%
7.2%
Euro
6.48%
6.96%
(a)How will this bank attempt to capitalize on this expected change
in exchange rate to make a speculative...
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