Question

In: Finance

You are a trader in Tokyo in Japan and observe the following quotes on the trading...

You are a trader in Tokyo in Japan and observe the following quotes on the trading screen for the Japanese Yen (JPY), Australian dollar (AUD), and US dollar (USD):

AUD per USD (AUD/USD) 1.3618 – 1.3762

JPY per AUD (JPY/AUD) 77.95 – 78.78

JPY per USD (JPY/USD) 105.29 – 105.82

Suppose that you have 200,000 JPY in your trading account and interest rates are 0. Identify all positive arbitrage opportunities by using these quotes. Final answers in JPY.

Solutions

Expert Solution

An arbitrage profit can be earned with these steps :

  • Convert JPY200,000 into USD. The rate applied is the ask rate because we are selling JPY and buying USD. USD received = 200,000 / 105.82 = USD1890
  • Convert USD1890 into AUD. The rate applied is the bid rate because we are selling USD and buying AUD. AUD received = 1,890 * 1.3618 = USD2,573.80
  • Convert AUD into JPY. The rate applied is the bid rate because we are selling AUD and buying JPY.  JPY received = 2,573.80 * 77.95 =  JPY200,628.07
  • Arbitrage profit = 200,628.07 - 200,000 = JPY628.07

Related Solutions

You are a trader in Tokyo in Japan and observe the following quotes on the trading...
You are a trader in Tokyo in Japan and observe the following quotes on the trading screen for the Japanese Yen (JPY), Australian dollar (AUD), and US dollar (USD): AUD per USD (AUD/USD) 1.3618 – 1.3762 JPY per AUD (JPY/AUD) 77.95 – 78.78 JPY per USD (JPY/USD) 105.29 – 105.82 Suppose that you have 200,000 JPY in your trading account and interest rates are 0. Can you identify any positive arbitrage opportunities by using these quotes? Explain and show your...
​Kamada: CIA Japan​ (A).  Takeshi​ Kamada, a foreign exchange trader at Credit Suisse​ (Tokyo), is exploring...
​Kamada: CIA Japan​ (A).  Takeshi​ Kamada, a foreign exchange trader at Credit Suisse​ (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest ​$5 comma 100 comma 0005,100,000 or its yen​ equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Is CIA profit​ possible? If​ so, how? Arbitrage funds available $ 5,100,000 Spot rate (¥/$) 118.49 180-day forward rate (¥/$) 117.85 U.S. dollar annual interest rate...
Suppose that you are a trader in Australia and you see the following quotes on your...
Suppose that you are a trader in Australia and you see the following quotes on your screen: Spot exchange rate : 0.9999 Singapore dollar (SGD) per Australian dollar (AUD) 270-day forward rate : 0.9000 SGD per AUD 270-day AUD interest rate 12% per annum (p.a.) 270-day SGD interest rate 1% p.a. Given these quotes, which way will capital flow? Explain why. Suppose that you have AUD 100,000. Can you make a profit (in AUD) with these quotes? If the spot...
6. A) You observe the following quotes for the USD/AUD in the spot market from two...
6. A) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? B) You observe the following quotes for the GBP /AUD in the...
4. Hint a) You observe the following quotes for the USD/AUD in the spot market from...
4. Hint a) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask    Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (b) You observe the following quotes for the GBP /AUD...
4. a) You observe the following quotes for the USD/AUD in the spot market from two...
4. a) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid   Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (b) You observe the following quotes for the GBP /AUD in the...
A stock is currently trading at a price of 22. You observe the following prices for...
A stock is currently trading at a price of 22. You observe the following prices for European put options on the stock (the strikes are in parentheses): C(20) =3.35 and.C(22) = 1.95. Given this information, you can conclude that the minimum price of the 24-strike call consistent with no-arbitrage is
Read the following: TOKYO — Prosecutors in Japan on Monday indicted Carlos Ghosn, the former chairman...
Read the following: TOKYO — Prosecutors in Japan on Monday indicted Carlos Ghosn, the former chairman of Nissan Motor, and the auto company itself on charges that they had violated financial laws by underreporting Mr. Ghosn’s compensation. Mr. Ghosn, once among the auto industry’s most respected executives, was arrested three weeks ago by the Japanese authorities. The allegations have upended a carmaking empire that includes Nissan and Mitsubishi Motors in Japan and Renault in France. In addition to the formal...
James Clark is a foreign exchange trader with Citibank. He notices the following quotes. __________________________________________________________________________________________________ Spot...
James Clark is a foreign exchange trader with Citibank. He notices the following quotes. __________________________________________________________________________________________________ Spot exchange rate USD1.2051/SFr Six-month forward exchange rate USD1.1922/SFr Six-month $ interest rate 8% per year Six-month SFr interest rate 10% per year ___________________________________________________________________________________________________ Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000. Input your answer without any currency information.
You work as a currency trader at the Big Time Bank and specialise in trading the...
You work as a currency trader at the Big Time Bank and specialise in trading the AUD USD. The current spot rate is USD AUD 0.678 and you have forecast a rate of USD AUD 0.6915 in 90 days. The borrowing and lending rates in Australia and the US are: Currency Lending rate Borrowing rate US dollar 2.3% 2.5% Australian dollar 1.4% 1.8% You will speculate on the change in the exchange rate and you have the authority to borrow...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT