Question

Now suppose the exchange rate between the euro and the dollar in New York is $/€...

Now suppose the exchange rate between the euro and the dollar in New York is $/€ = $1.15/€; the exchange rate between the dollar and the yen is ¥/$ = ¥108/$; the exchange rate between the yen and the euro is 126.50.

1)Do you see an arbitrage opportunity here? Briefly explain.

2)If there is and your home currency is the US dollar how much profit can you make if you engage $1,000,000 in an arbitrage transaction?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose you had $21,000 to invest. The exchange rate between the euro and the U.S. dollar...
Suppose you had $21,000 to invest. The exchange rate between the euro and the U.S. dollar was $1.20 per euro, and the exchange rate between the Canadian dollar and the U.S. dollar was U.S. $1.05 per Canadian dollar. The exchange rate between the Canadian Dollar and the Euro is 1.10 Canadian Dollars to the Euro. Three-point arbitrage is the practice of taking your currency, buying a foreign currency then using that foreign currency to buy a second foreign currency the...
Investors expect that the exchange rate between the euro and the US dollar will change from...
Investors expect that the exchange rate between the euro and the US dollar will change from 1 euro = $1.22 to 1 euro = $1.15. Show what investors (European or US investors) make arbitrage profits. Assume that the interest rate for both markets is 6%. You may choose any amount for the initial investment.
Suppose the dollar–euro exchange rate, E$/€, are as follows: in New York, $1.2 per euro; and...
Suppose the dollar–euro exchange rate, E$/€, are as follows: in New York, $1.2 per euro; and in Paris, $1.3 per euro.  Describe how investors use arbitrage to take advantage of the difference in exchange rates.  Will this make euros appreciate or depreciate (against dollars) in Paris? Will this make euros appreciate or depreciate (against dollars) in New York? Under what conditions will the equilibrium be restored? Explain. Please show all work
Suppose that yesterday the dollar-euro exchange rate in Frankfurt, Germany was 1.10, but today in New...
Suppose that yesterday the dollar-euro exchange rate in Frankfurt, Germany was 1.10, but today in New York it is 1.15. Are there arbitrage opportunities present? Explain.
Q. Suppose the dollar–euro exchange rate, E$/€, are as follows: in New York, $1.2 per euro;...
Q. Suppose the dollar–euro exchange rate, E$/€, are as follows: in New York, $1.2 per euro; and in Paris, $1.3 per euro. (10 pts) a) Describe how investors use arbitrage to take advantage of the difference in exchange rates. (5 pts) b) Will this make euros appreciate or depreciate (against dollars) in Paris? Will this make euros appreciate or depreciate (against dollars) in New York? Under what conditions will the equilibrium be restored? Explain. (5 pts)
1.Suppose that you are a foreign exchange trader for a bank based in New York. You...
1.Suppose that you are a foreign exchange trader for a bank based in New York. You are faced with the following market rates: Spot exchange rate: SFr 0.9845/$. 6 month dollar interest rate = 1.0% per annum 6 month Swiss franc interest rate = 0.25% per annum 6 month forward exchange rate: = SFr 0.9785/$ a) Is there a Covered Interest Arbitrage (CIA) opportunity here? Explain why or why not. b) Given the data in part (a), spell out the...
Construct cross-rate for bid & ask prices IF dollar-euro exchange rate is USD1.25 = EUR1.00 and...
Construct cross-rate for bid & ask prices IF dollar-euro exchange rate is USD1.25 = EUR1.00 and the dollar-Yen exchange rate is JPY200 = USD1.00. What is the EUR-JPY cross rate? USD equivalent Country BID ASK Switzerland (Franc) CHF $0.65/CHF $0.68/CHF Euro € $1.15/€ $1.2/€ Triangular Arbitrage Helen Depp, who trades at an FX cubicle in a big bank in UK notices the following exchange rates of the USD per pound and USD per euro. $1.2195/€ or €0.82/$ $1.2262/£     or £0.8155/$...
Suppose that you are a foreign exchange trader for a bank based in New York. You...
Suppose that you are a foreign exchange trader for a bank based in New York. You are faced with the following market rates: Arbitrage funds available                                                          $ 5,000,000 Spot exchange rate (kr/$)                                                          6.1717 (i.e., 1 dollar = 6.1717 krones) 3-month forward rate (kr/$)                                                       6.1981 U.S. dollar interest rate                                                             4.000 % per annum Danish krone interest rate                                                          4.950 % per annum Note: The maximum amount you may invest is $5,000,000 or its equivalent in Danish krones....
A money manager with $1,000,000 to invest notices that the dollar/yen exchange rate is quoted as...
A money manager with $1,000,000 to invest notices that the dollar/yen exchange rate is quoted as ¥125/$ and the dollar/franc exchange rate is quoted at CHF.80/$. If a bank quotes you a cross rate of ¥156.25/CHF how much money can you make via triangular arbitrage (in terms of dollars)? Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.    How will currency prices adjust to...
You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as...
You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50 how much money can you make via triangular arbitrage (in terms of dollars)? • 1,160,000 • 0 • 500,000 • 250,000 Can you tell me if my math is correct? Answer is 0 Steps: Convert USD 1,000,000 to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT