Question

Why are arbitrage opportunities likely to disappear soon after they have been discovered? To illustrate your answer, assume that covered interest arbitrage involving the immediate purchase and forward sale of baht is possible. Discuss how the baht’s spot and forward rates would adjust until covered interest arbitrage is no longer possible. What is the resulting equilibrium state called?

Answer 1

The option "3rd option" is right option.

With globalization, currencies of different countries are used for investment in other countries. Exchange rate is a value at which home currency is converted into foreign currency or another currency.

€1.00 = $1.23

¥100 = $0.94

 

Hence, option "3rd option" is right option.

Hence, option "3rd option" is right option.