(a) What is interest rate arbitrage?
(b) If you observe the following rates: ic$ = 4%; i$ = 3%; St = C$1.0150/$ and Ft+6 = C$1.0160/$,
(i) Do these rates offer interest rate arbitrage opportunity?
(ii) If arbitrage opportunity exists, calculate the arbitrage profit.
(a) What is interest rate arbitrage? (b) If you observe the following rates: ic$ = 4%; i$ =...
3. (15 points) Suppose you observe the following spot exchange rates: S(€/S) = 0.67, S(S/£) = 2.00, S(£/E) - 0.80 4. (8 points) Show if there exists a triangular arbitrage. If there exists an arbitrage, what Is your strategy for a profit in $ (Always start from selling S, end with buying b. (7 points) Start with $100,000, calculate the profit in $.
You specialize in cross-rate arbitrage. You notice the following quotes: Singapore dollar/U.S. dollar (S$/S) spot rate = S$1.60/$ Canadian dollar/U.S. dollar (CD/$) spot rate = CD1.33/$ Singapore dollar/Canadian dollar (S$/CD) spot rate = S$1.15/CD Ignoring transaction costs: A) Do you have an arbitrage opportunity based on these quotes? B) If an arbitrage opportunity exists, what transactions would you undertake to secure the arbitrage profit? C) How much would your profit be if you have $1,000,000 available for this purpose?
Please Only Answer Section B and C Thanks 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 0.6926 0.6928 0.7030 0.7075 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? Please Only Answer Section...
2. Suppose that zero interest rates with quarterly compounding are as follows: Maturity (months) Rate(%) 3 8.0 6 8.4 9 8.8 12 9.0 i. Calculate the forward interest rates for the second, third, and fourth quarters. ii. You should have found that the forward rate over the fourth quarter is 9.6006%. Carefully explain the available arbitrage strategy and calculate your profit) if you found a bank willing to lend to you forward at 9.0000% over the fourth quarter.
A. Take the following two exchange rates and compute the EUR/INR cross exchange rate. INR12.1225/USD EUR 8.145/USD.B. In question A, if there is a direct cross exchange rate of EUR.66215/INR, is there a triangular arbitrage opportunity? If yes, start with $50,000 and indicate how much triangular arbitrage profit exists for 1 trip around the triangle.
3. Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso = $ .100 1-year Forward rate of Mexican peso = $ .098 Mexican interest rate = 8% US. interest rate =5% Show how to identify any arbitrage opportunity based on the Interest Rate Parity (IRP). What is your strategy to achieve your profit? What is your arbitrage profit per $1,000,000 (CIA) ?
1. Suppose you observe the following quotes for Thai baht (in Vietnamese dong) in Bangkok, for Czech koruna (in Vietnamese dong) in Ho Chi Minh City, and baht (in Czech koruna) in Prague. Bangkok: dong/baht 649.35062-656.89420 Ho Chi Minh City: dong/koruna 1038.6277 – 1041.6667 Prague: koruna/baht 0.5896 -0.6076 a. Demonstrate that an arbitrage opportunity exists by selecting any two markets and showing that the implied quote does not overlap the actual quote in the third market. b. Suppose you start...
Not yet graded / 15 pts Question 3 Describe covered interest rate arbitrage and describe why it tends to align interest rates across the globe. Use the United States and Great Britain as the two nations that might have different interest rates. Suppose interest rates are higher in the U.K. than in the U.S. Describing specifics, how would someone engage in covered interest arbitrage? Interestingly, I just said in the above question that interest rates are NOT aligned. How do...
Toshi Numata of Credit Suisse First Boston (Tokyo) is exploring covered interest arbitrage (CIA) possibilities in the market given the following current market quotes. Identify the arbitrage opportunity and report your profit. Please not that interest rates are expressed in per annum (annualized terms); do not forget to make necessary adjustments. (Round your answers to next integer) a)JPY15,700,000 b)USD 15,700 c)USD142,727 d)JPY142,727,000
4. The oneyear interest rate in New Zealand is 4 percent. The oneyear U.S. interest rate is 10 percent. The spot rate of the New Zealand dollar (NZ$) is $0.50. The forward rate of the New Zealand dollar is $0.54. a) Calculate the covered interest arbitrage profit if feasible for U.S. investors. Assume you start with $1,000,000. b) Calculate the covered interest arbitrage profit if feasible for New Zealand investors. Assume you start with NZ$1,000,000.