Question

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.

Answer #1

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?

Currently, the spot exchange rate is 1.50 USD/GBP and the
three-month forward exchange rate is 1.510 USD/GBP. The three-month
interest rate is 5.0% per annum in the U.S. and 2.0% per annum in
the UK. Assume that you can borrow as much as $1,500,000 or
£1,000,000.
a/ What is the implied three-month U.S.per annuminterest
rate? (round to 2 decimals in %)
b/ Does Interest Rate Parity hold?
c/ Determine the arbitrage profit (if any, otherwise
type "0") and report it...

The following spot rates are quoted:
USD/ GBP 1.3024 - 89
TTD/GBP 8.2965 - 5745
(a) Using a cross rate, calculate the bid-ask spread for the
TTD/USD exchange rate.
(b) If TTD/USD was actually quoted at 6.6514-7836, calculate how
much arbitrage profit (in TTD) could be earned from TTD1,000.

Market
Quotation
FX Rate
Zurich
EUR / GBP
0.8832
Chicago
GBP / USD
1.2649
London
EUR / USD
1.1158
Is there an arbitrage opportunity? (ignore transactions costs
and taxes)
If there is an arbitrage opportunity, calculate the profit for
1,000,000 EUR and show all the transactions carried at each
market.

Assume that the spot exchange rate is 1.38 USD/GBP, while
interest rates are 3.2% in the US and 2.5% in the UK.
a. According to international parity conditions, what is the
expected 6-month forward exchange rate?
b. You believe that political conditions are such that the GBP
will lose value in the coming six months. What position should you
take in the forward market?
c. If you take the position chosen in part B and the spot rate
in six...

The following table contains information on spot and forward
exchange rates among U.S. dollar (USD), Malaysian ringgit (MYR),
Japanese yen (JPY) and Canadian dollar (CAD).
Currencies
3-month forward rate
Spot rate
USD/MYR
4.3936
4.3610
USD/JPY
107.3333
107.6400
USD/CAD
1.3856
1.3839
The following table contains information on the 3-month nominal
risk-free rate per annum for the four different currencies
3-month nominal risk-free rate
MYR
USD
CAD
JPY
4.00%
1.00%
1.50%
0.00%
Note that the Japanese yen 3-month nominal risk-free rate is...

In March 8th 2020, In London 1 $ = £ 0.7656, while in Zurich 1
SF = $1.08, but you found out that at JP Morgan, the cross rate
between CHF and GBP is: 1 SF = £ 0.9264.
If you are a trader at Citibank, and you have USD 1,000,000 for
an arbitrage.
Is there any arbitrage profit that could be made with a
triangular arbitrage action?
Describe an example of how such a profit may be earned (draw...

1)Citibank quotes USD1.8500/GBP, Barclays quotes EUR1.5000/GBP,
and Dresdner quotes USD1.2000/EUR. If you have USD 1,000,000 to
invest, find the triangular arbitrage profit.
2)Amanda Smyth is a foreign exchange dealer for a bank in Texas.
She has USD 1,000,000 for a short-term money market investment and
wonders if she should invest in U.S. dollars for six months or make
a covered interest arbitrage (CIA) investment in the Japanese yen.
If she makes the CIA investment, what is the total amount that...

Rizzo Company (RC) has GBP 1 million receivables due in one
year. While the current spot price of GBP is USD 1.31, RC expects
the future spot rate of British pound to fall to approximately
$1.25 in a year so it decides to avoid exchange rate risk by
hedging these receivables. The strike price of American-style put
options are $1.29. The premium on the put options is $.02 per unit.
Assume there are no other transaction costs. Finally, there is...

Suppose the following prevailed in the foreign currency market:
$/€ (USD/EUR) spot: 1.800 $/€ (USD/EUR 90 day forward: 1.0810 $
(USD) interest rates 0.0075 (75 basis points or three fourths of
one percent) € (EUR) interest rates 0.0010 (10 basis points or one
tenth of one percent ) Use these data to answer the following three
questions.
Question 12 (1 point) What is the forward premium/discount of
the € (EUR)?
Question 13 (1 point) What is the USD - EUR...

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