Question
In: Finance
How much is your arbitrage profit in Euros at expiration, if you know that the current...
How much is your arbitrage profit in Euros at expiration, if you know that the current exchange rate is Euro 1.2 / GBP, the 60-day forward rate is Euro 1.15 /GBP, the risk free rate in Europe is 2% and the risk free rate in the UK is 3.6%? Make your calculation so that the spot transaction is for GBP 500,000.
Answer is 23,603.66 please provide detailed solution
Solutions
Expert Solution
As per Interest rate parity:
As per Interest rate parity the difference in spot fate and forward rate exits due to differences in interest rate between two countries.
F/S = (1+ra)/(1+rb)
F= forward rate
S = spot rate.
ra = interest rate of price currency.
rb= interest rate of base currency.
If the above equation does not hold good then there is a chance of Arbitrage.
Answer: 23,478.26 (rounding off errors from your answer).
ANSWER IN THE IMAGE. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
jeff jeffy answered 1 year agoRelated Solutions
How much is your arbitrage profit in Euros at expiration, if you know that the current...
How much is your arbitrage profit in Euros at expiration, if you
know that the current exchange rate is Euro 1.2 / GBP, the 60-day
forward rate is Euro 1.16 /GBP, the risk free rate in Europe is 2%
and the risk free rate in the UK is 4%? Make your calculation so
that the spot transaction is for GBP 500,000.
How much is your arbitrage profit in Euros at expiration, if you know that the current exchange rate...
How much is your arbitrage profit in Euros at
expiration, if you know that the current exchange rate
is
Euro 1.2 / GBP, the 60-day forward
rate is Euro 1.18 /GBP, the risk free rate in Europe is 2% and
the risk free rate in the UK is 3.2%?
Make your calculation so that the spot transaction is
for GBP 500,000.
How much arbitrage profit can you obtain with the following information? Hint. Covered interest arbitrage Spot...
How much arbitrage profit can you obtain with the following
information? Hint. Covered interest arbitrage Spot exchange rate:
1.1 Euro / dollar Forward exchange rate: 1 Euro / dollar Risk free
rate in U.S: 3% Risk free rate in Europe: 2%
Given the following information, show how you can arbitrage and compute your profit, if you can...
Given the following information, show how you can arbitrage and
compute your profit, if you can borrow 200 million dollars or euros
equivalent for three months. Show your profit in both dollars and
euros
Spot rate ($/€) 1.255
3-month forward rate
($/€) 1.213
3-month U.S. dollar interest rate 2.0%
3-month euro interest rate 1.6%
Given the following information, show how you can arbitrage and compute your profit, if you can...
Given the following information, show how you can arbitrage and
compute your profit, if you can borrow 200 million dollars or euros
equivalent for three months. Show your profit in both dollars and
euros.
Spot rate ($/€) 1.255
3-month forward rate ($/€) 1.213
3-month U.S. dollar interest rate 2.0%
3-month euro interest rate 1.6%
One year ago, you bought a put option on 200,000 euros with an expiration date of...
One year ago, you bought a put option on 200,000 euros with an
expiration date of one year. You paid a premium on the put option
of $.05 per unit. The exercise price was $1.32. Assume that one
year ago, the spot rate of the euro was $1.29, the one-year forward
rate exhibited a discount of 3%, and the one-year futures price was
the same as the one-year forward rate. From one year ago to today,
the euro depreciated against...
Given what you know about the current global pandemic, (and if you don't know much do...
Given what you know about the current global pandemic, (and if
you don't know much do some news searches and reading), write a
brief assessment (no more than a page) of the state of global
governance in relation to Covid-19.
2. Arbitrage and spot exchange rates Suppose you trade dollars and euros for a bank that...
2. Arbitrage and spot exchange rates
Suppose you trade dollars and euros for a bank that has branches
in Boston and Rome. You can electronically transfer the funds
between the two branch locations at no cost, and trading
commissions are negligible. The current dollar-per-euro exchange
rate in Boston is E$/EURBO=1.5653
, while in Rome, it is E$/EURRO=1.586.
You can make a profit for the bank if you buy euros in
[Rome / Boston ] and sell them in
[Rome / Boston...
You are given the following information. What is the arbitrage profit if you have €1,000,000 to...
You are given the following information. What is the arbitrage
profit if you have €1,000,000 to use?
Bid
Ask
S(SEK/€)
10.4091
10.4286
S(£/€)
0.9115
0.9127
Cross-rate S(SEK/£)
11.4021
11.4042
You are given the following information. What is the arbitrage profit if you have £1,000,000 to...
You are given the following information. What is the arbitrage
profit if you have £1,000,000 to use? (£ = British Pound; ZAR =
South Africa Rand; DKK = Danish Krone)
S(ZAR/GBP)
21.1305
S(DKK/GBP)
8.7171
S(DKK/ZAR)
0.3785
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Enumerations Create an advanced enumeration to represent months (JANUARY – DECEMBER) called enuMonths Add internal properties...
- What is the minimum size of the automorphism group of a simple directed graph having more...
- The birthday paradox says that the probability (chance) that two people in a room will have...
- #include <iostream> #include "lib.hpp" using namespace std; int main() { // declare the bool bool...
- Why do we compare means instead of individual scores? for comparing average SAT test scores across...
- NPV Your division is considering two projects with the following cash flows (in millions): 0...
- The equivalent synchronous impedance of a 25kVA, 400V three-phase Y-connected synchronous generator is 0.05 + j1.6...
ADVERTISEMENT