As an employee of the foreign exchange department for a large company, you have been given the following information:
Beginning of Year
Spot rate of £ ? $1.596
Spot rate of Australian dollar (A$) ? $.70 Cross exchange rate: £1
? A$2.28 One-year forward rate of A$ ? $.71 One-year forward rate
of £ ? $1.58004 One-year U.S. interest rate ? 8.00% One-year
British interest rate ? 9.09% One-year Australian interest rate ?
7.00%
Determine whether triangular arbitrage is feasible and, if so, how it should be con- ducted to make a profit.
2 Using the information in question 1, determine whether covered interest arbitrage is feasible and, if so, how it should be conducted to make a profit.
I have explained step by step, if you face any doubt., Please comment in the box. Thank you !
Get Answers For Free
Most questions answered within 1 hours.