Question

Assume spot FX rates of $1.3754/Euro and $1.6561/BP. What should the cross

exchange rate for Euro/BP (Euros per unit of BP)? If the market rate is 1.286Euro/BP,

describe the arbitrage strategy. Assume that you have $100,000 to invest, what will be

profit of the arbitrage strategy (so your work step by step)? If arbitrage profit exists,

what market forces would occur to eliminate the arbitrage opportunity?

Answer #1

Assume there is a direct cross market for GBP/Sf. Assume the
spot FX rates with the USD are 1.5 Sf/$ and 1.50 $/£.
What should be the direct cross-rate be for Sf/£?
If the direct cross-rate is 2.50 Sf/£, what three deals can you
do to lock in a risk free profit on 1 unit of the base currency?
Calculate the arbitrage profit.

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.
$1.2195/€ or €0.82/$
$1.2262/£ or
£0.8155/$...

The £ spot exchange rate is $1.6135/£, the € spot exchange rate
is $1.2021/€, and the £/€ spot rate is £0.7380/€.
a) First show whether an arbitrage opportunity exists. (4
points)
b) Second, if arbitrage profits are available, describe a strategy
to exploit the arbitrage opportunity and calculate the arbitrage
profits you would earn. Start by borrowing 1,000 units in one
currency and show that at the end of your trades you have more than
you borrowed. (8 points)

You observe that the EUR/HKD spot exchange rate (i.e., the price
of 1 Euro in terms of Hong Kong Dollars) is 8.91 and the 1-year
EUR/HKD forward exchange rate is quoted at 9.5.(Total 10 marks)
(a) Does an arbitrage opportunity exist given that the
1-year deposit rates in Hong Kong and Europe and are 2.5% and 0.5%,
respectively?
(b) If so, outline an arbitrage strategy and explain
step by step why your strategy yields risk-free profits.

The Green Bank expects the exchange rate for the euro to
depreciate from the spot rate of $0.15 to $0.14 in 10 days. Green
Bank is able to borrow $10 million or 70 million euros. The short
term interest rates (annualized) in the interbank market are as
follows: CURRENCY LENDING RATE BORROWING RATE U.S Dollars 8% 8.3%
Euro 8.5% 8.7% (a)How will the Green Bank attempt to capitalize on
this expected change in exchange rate to make a speculative profit?...

A. Take the following two exchange rates and compute the EUR/INR
cross exchange rate. INR12.1225/USD and EUR.8145/USD.
B. In question A, if there is a direct cross exchange rate of
EUR.066215/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.

An investment banker
has $10,000,000 to invest in the foreign currency market. The
dollar-euro exchange rate is quoted as $1.50/ € and the
dollar-pound exchange rate is quoted at $1.60/£. If a bank quotes a
cross rate of €1.10/£, how much money can she make (in terms of
dollars) via triangular arbitrage if she is charged a 2% interest
rate on borrowed funds? Round intermediate steps to four
decimals.
312,500
112,500
0
1,420,833.33
Based on the
information provided in...

Take the following two exchange rates and compute the EUR/INR
cross exchange rate. INR12.1225/USD and EUR.8145/USD.
In the question above, if there is a direct cross exchange rate
of EUR.066215/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. Show your work

National Bank quotes the following for the British pound and
the New Zealand dollar:
Quoted Bid Price
Quoted Ask Price
Value of a British pound (£) in $
$1.61
$1.62
Value of a New Zealand dollar (NZ$) in $
$.55
$.56
Value of a British pound in
New Zealand dollars
NZ$2.95
NZ$2.96
Equilibrium cross-exchange
rate
NZ$2.875
NZ$2.945
Assume you have $100,000 to conduct
triangular arbitrage. Show step by step what transactions you will
make and what is...

Do the following
problems. You must show your work.
a) You observe the
following exchange rates in the market.
i) $1 = 0.85 euros and
1 krona = $ 0.13. Find the cross exchange rate between euro and
krona, that is, how many euros do you receive for every krona
exchanged?
ii) 1 British pound
(BP) = $1.12 and 1 euro = $1.04. Find the cross exchange rate
between BP and euro, that is, how many euros do you receive...

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