Your broker gives you the following rates for AUD, JPY, and CAD: AUD0.007/JPY, AUD0.821/CAD and JPY118?CAD....

Your broker gives you the following rates for AUD, JPY, and CAD: AUD0.007/JPY, AUD0.821/CAD and JPY118?CAD. Which of the following is UNLIKELY to occur if the market reversess back to its equilibrium state in which there are no triangular arbitrage opportunities

A) the AUD/CAD will increase
B) the AUD/JPY will increase
C) The JPY/CAD will increase
D) nothing will change

Expert Solution

Answer-

Given

AUD/JPY = .007 / 1
AUD/CAD = 0.821 / 1
JPY/CAD = 118

Here

JPY/AUD = 1 / AUD/JPY = 1 / 0.007/1 = 142.86 / 1

JPY/CAD = JPY/AUD x AUD/CAD = 142.86 x 0.821 = 117.29

JPY/CAD has increased as now only 117.29 JPY are required rather than 118 JPY

AUD/CAD = AUD/JPY x JPY/CAD = 0.007 x 118 = 0.826

AUD/CAD has decreased from 0.821 to 0.826 as more AUD are required to purchase CAD.

it is UNLIKELY to occur if the market reverses back to the equilibrium state if there are no triangular arbitrage opportunities.

Theefore the correct option is A. AUD/CAD will decrease instead of increase.

jeff jeffy answered 2 years ago

If Given, USD-JPY 104.9400 USD-CAD 1.3304 1. Find the cross rate between CAD and JPY...? 2....

If Given, USD-JPY 104.9400 USD-CAD 1.3304 1. Find the cross rate between CAD and JPY...? 2. Find the USD/JPY and USD/CAD....? 3. Based on rate above, is the cross rate between CAD and JPY what you expected it to be? ( We learned about triabgular arbitrage, and we know that most of the time triangular arbitrage is not feasible because if it is, market force will be at work to correct it)

2) Forward exchange rates under no-arbitrage a) Find the five-year forward AUD/JPY exchange rate under no-arbitrage...

2) Forward exchange rates under no-arbitrage a) Find the five-year forward AUD/JPY exchange rate under no-arbitrage if the spot exchange rate is 80 yen per Australian dollar, and the five-year risk-free interest rates in Australia and Japan are 4% and 6% per annum, respectively. (1 point) b) Choose a forward exchange rate that is greater than the no-arbitrage exchange rate you found in (a), and describe the arbitrage strategy you would use to exploit this situation. Calculate your profits from...

4. If your company hold these 4 positions until 2011-01-01 CAD 1,000,000 JPY 100,000,000...

4. If your company hold these 4 positions until 2011-01-01 CAD 1,000,000 JPY 100,000,000 MXN 5,000,000 THB 100,000,000 DATE CAD1 JPY1 MXN1 THB1 SLR1 EUR1 CNY1 GBP1 INR1 SGD1 2011-01-01 0.9939 0.0121 0.0825 0.0327 0.0090 1.3371 0.1516 1.5782 0.0220 0.7774

GBP/JPY and USD/JPY Analyse what will happen to these exchange rates in the next 3-6 months....

GBP/JPY and USD/JPY Analyse what will happen to these exchange rates in the next 3-6 months. Based on the theory (use at least three), include relative interest rates, relative inflation rates, relative growth rates, government intervention and exchange rate expectation. You may also use other factors that may affect the exchange rate (e.g. commodity prices in the nation). In the analysis, if you have looked at a particular indicator, you must write why you believe that this indicator will cause...

Citibank gives you the following information: Spot exchange rate (AUD/EUR) = 1.42 One-month forward exchange rate...

Citibank gives you the following information: Spot exchange rate (AUD/EUR) = 1.42 One-month forward exchange rate (AUD/EUR) = 1.45 One-month domestic interest rate (in Australia) = 6.5% p.a. One-month foreign interest rate (in Germany) = 4.5% p.a. (a) Is there any violation of the CIP? Why or why not? (b) Is the AUD selling at a premium or discount against the EUR? By how much? (c) Suggest a value for the forward rate which is consistent with CIP. (d) Based...

Use the following forward bid-ask, and interest rates for of AUD and USD, Spot rate in...

Use the following forward bid-ask, and interest rates for of AUD and USD, Spot rate in AUD/USD: 1.2010-16 180-day forward rate in AUD/USD: 1.2231-39 The annual interest rates for AUD (lending or borrowing): 4%, 5%; for USD: 2%, 3% Assume a year has 360 days, to answer: Find the mid rates of these rates and use PPP to explain if: the 180 days forward rate > expected 180 days spot rate an investor can make profit by investing or borrowing...

If you ignore a margin call, your broker immediately:

If you ignore a margin call, your broker immediately:Will seize all the assets in your accountMay sell some of your securities to repay the margin loanWill increase both your margin loan and the interest rate on that loanWill let you walk away without payingNone of the above

Discuss the effect of Interest Rate Parity on USD and AUD exchange rates.

Question 1: The exchange rates in New York are: $1 = AUD 1.113 and $1 =...

Question 1: The exchange rates in New York are: $1 = AUD 1.113 and $1 = £0.658 A dealer is offering a quote: AUD 1 = £0.7617. What is the profit you can earn on $24,541 using triangle arbitrage? Question 2: You are given the following quotes: U.S. dollar/Brazilian Real = 0.3027 U.S. dollar/Australian Dollar = 0.7643 U.S dollar/Chinese Yuan = 0.1434 What is the Brazilian Real/Chinese Yuan cross rate?

EXCHANGE RATES: AUSTRALIAN DOLLAR (AUD) [15 marks] Consider the following hypothetical (separate) events from December 2020...

EXCHANGE RATES: AUSTRALIAN DOLLAR (AUD) [15 marks] Consider the following hypothetical (separate) events from December 2020 to December 2021: Speculators are seriously concerned about long-term effects on the Australian economy of the coronavirus. India and China increase their demand for Australia’s metals such as iron ore and lithium. US Federal Reserve lowers the US cash rate from 1.50% to 0.50%, while the Reserve Bank of Australia raises its cash rate from 0.50% to 1.00%. For each event, identify the specific...

Question