Question

21-)

Given the following exchange rates, what arbitrage profit is available if you have $1 million? ¥129.87/$, €1.1226/$, ¥115.74/€

Select one:

a. $259,652

b. $460

c. -$460

d. $878

30-)

The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange rate is 127 ¥/$ then the yen is selling at a per annum forward ________ of ________.

Select one:

a. premium; 1.57%

b. discount; 6.30%

c. premium; 6.30%

d. discount; 1.57%

33-)

Sarah bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250/£ at which time she sold the pound futures. If each pound futures contract is for an amount of £62,500, how much money did Sarah gain or lose from her speculation with pound futures?

Select one:

a. £937.50 gain

b. £937.50 loss

c. $937.50 loss

d. $937.50 gain

Answer 1

HI,

as per policy we will do only one question solution here.

in question 21)

you have $1,000,000 initially

so at first from this $1,000,000 we will buy Euro using given exchange rate.

1 dollar = 1.1226 Euro

$1,000,000 = 1.1226*1000000 = $1,122,600 Euro

Now from this Euro amount you will buy Yen

1 Euro =115.74 Yen

1,122,600 Euro = 1122600*115.74 = 129,929,724 Yen

From Yen we will buy dollar again

1 Yen = 1/129.87 dollar

129,929,724 Yen = 129929724/129.87 = $1,000,459.88

So arbitrage price = 1,000,459.88 -1,000,000 = $459.88 ~$460

Hence option b is correct here.

Thanks