Question

You have the following market data. Spot price for the Swiss Franc is $1.179 per Franc. Two-month forward price is $1.22 per Franc. U.S. dollar LIBOR for two months is a continously compounded rate of 1.34% per annum. Swiss LIBOR for two months is a continuously compounded rate of 3.54% per annum. Underlying asset for this contract (i.e., the quantity of Swiss Francs to be delivered in two months) is 500,000 Swiss Francs. What is the total net profit if you execute the arbitrage strategy?

Answer #1

Theoretical forward rate,

F = S_{o}e^{(rd-rf)t}

Where rd = 1.34%, rf = 3.54%, t = 2/12 = 0.1667, So = 1.179

Forward Rate = F = $1.175

Here actual forward price higher than theoretical price.

So, Arbitrageur should buy 500000 swiss franc and short Swiss forward at $1.22 per franc.

In this process Arbitrageur will buy 500000 at spot price = 500000*1.179= $589,500

Short 500000 worth forward contract.

After two months he will close forward contract using 500000 francs which he purchased two months ago.

Income forward = 500000*1.22 = $610,000

Net Profit = 610,000-589,500

**Net Profit = $20,500**

You have the following market data.
Spot price for the Swiss Franc is $1.156 per Franc.
Two-month forward price is $1.22 per Franc.
U.S. dollar LIBOR for two months is a continously compounded
rate of 1.75% per annum.
Swiss LIBOR for two months is a continuously compounded rate of
2.05% per annum.
Underlying asset for this contract (i.e., the quantity of Swiss
Francs to be delivered in two months) is 500,000 Swiss Francs.
What is the total net profit if...

You have the following market data. Spot price for the Mexican
Peso is $0.054 per Peso. Futures price is $0.069 per Peso on a
contract that expires in one month. U.S. dollar LIBOR for four
months is a continously compounded rate of 2.7% per annum. British
LIBOR for four months is a continuously compounded rate of 2.45%
per annum. The contract size is 500,000 Mexican Pesos. What is the
total net profit if you execute the arbitrage strategy with one...

You have the following market data.
Spot price for the Euro is $1.174 per Euro.
Three-month forward price is $1.06 per Euro.
U.S. dollar LIBOR for three months is a continously compounded
rate of 1.26% per annum.
Euro LIBOR for three months is a continuously compounded rate
of 3.98% per annum.
Underlying asset for this contract (i.e., the quantity of Euros
to be delivered in three months) is 100,000 Euros.
What is the total net profit if you execute the...

You have the following market data.
Spot price for the British pound is $1.475 per pound.
Futures price is $1.27 per pound on a contract that expires in
four months.
U.S. dollar LIBOR for four months is a continously compounded
rate of 1.43% per annum.
British LIBOR for four months is a continuously compounded rate
of 3.41% per annum.
The contract size is 62,500 British pounds.
What is the total net profit if you execute the
arbitrage strategy with one...

You have the following market data.
Spot price for the Mexican Peso is $0.060 per Peso.
Futures price is $0.064 per Peso on a contract that
expires in one month.
U.S. dollar LIBOR for one month is a continuously compounded
rate of 1.48% per annum.
Mexican LIBOR for one month is a continuously compounded rate
of 2.71% per annum.
The contract size is 500,000 Mexican Pesos.
What is the total net profit if you execute the
arbitrage strategy with one...

A Global Forex trader gives the following quotes for the Swiss
Franc spot, one month, three months and six months to US based
treasurer
USD 1.0356/60 4/6 9/8 14/11
Calculate outright price for Spot, One – Month, Three- Month,
Six Months
If the trader wished to buy 10,000 Swiss francs for one and
three months forward, how much would he pay in dollars?
If he wished to purchase 20,000 US dollars three-Month Forward
Contract and Six-Month Forward Contract, how much...

In early 2012, the spot exchange rate between the Swiss Franc
and U.S. dollar was 1.0404 ($ per franc). Interest rates in the
U.S. and Switzerland were 1.35% and 1.10% per annum, respectively,
with continuous compounding. The three-month forward exchange rate
was 1.0300 ($ per franc). What arbitrage strategy was possible? How
does your answer change if the exchange rate is 1.0500 ($ per
franc).

The forward price on the Swiss franc for delivery in 45 days
is quoted as 1.1000. The futures price for a contract that will be
delivered in 45 days is 0.9000. Explain these two quotes. Which is
more favorable for a trader wanting to sell Swiss francs?

You have the following market data.
Spot price of the Japanese Yen is $0.009185.
Underlying asset for the Japanese Yen futures contract is
12,500,000 Yen.
3-month Japanese LIBOR rate is 2.14% per year, and the 3-month
U.S. LIBOR rate is 2.76% per year. Both rates are continuously
compounded.
Japanese Yen futures contract that expires in 3 months has a
futures price of $0.009030.
What is the general arbitrage strategy?
A. Take a short position in the futures contract, borrow yen...

on Dec. 2020, the spot exchnge rate betwn the Franc and dollar
was 1.0585 (Dollar per Franc). Interest rates in the U.S and
Switzerland were 0.80% and 0.30% per annum, respectively, with
continuous compounding. The 4-month forward exchnge rate
was 1.0730 ($ per SWF).
Is there an arbitrage chance, how? Using 1 Million USD, in 4
months what profit could be made through that arbitrage? If there
is not an opportunity for arbitrage explain why

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 14 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago