Plaese show all work, thank you You are working on a currency arbitrage desk. You look...

Plaese show all work, thank you

You are working on a currency arbitrage desk.

You look up exchange rates and interest rates for the USD versus the Canadian Dollar (CAD) and find the following: The current spot rate is 0.810 USD/CAD. The 12-month forward exchange rate is 0.833 USD/CAD (note: Canadian dollar futures contracts are 100,000 CAD each). The 12-month T-bill yield in the USA is 1.31% (assume this is the continuously compounded annualized yield) and the 12-month risk-free rate in Canada is 1.45% (also continuously compounded and annualized). What is the arbitrage trade, and what is your profit per futures contract?

Solutions

Expert Solution

Use spreadsheet for the ease in computations. Enter values and formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

jeff jeffy answered 1 year ago

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