Question

You are looking at the markets for THB (Thai bahts) and EUR. You observe that the bid/ask interest rates in Thailand are 20%/22%, and the bid/ask interest rates on the euro are 2%/4%. The spot exchange rate is 40.9 THB/EUR, and you expect that in the next 3 months (90 days) the exchange rate will not move much, moving to 41.3 THB/EUR.

Your borrowing capacity is 2 million EUR and 50 million THB.

Based on this information, you decide to borrow EUR at the relatively low rates, and invest in the higher THB rate. What will be your profit as measured in EUR?

Answer #1

You are looking at the markets for THB (Thai bahts) and EUR. You
observe that the bid/ask interest rates in Thailand are 20%/22%,
and the bid/ask interest rates on the euro are 2%/4%. The spot
exchange rate is 40.9 THB/EUR, and you expect that in the next 3
months (90 days) the exchange rate will not move much, moving to
41.3 THB/EUR. Your borrowing capacity is 2 million EUR and 50
million THB. Based on this information, you decide to...

You are looking at the markets for THB (Thai bahts) and EUR. You
observe that the bid/ask interest rates in Thailand are 20%/22%,
and the bid/ask interest rates on the euro are 2%/4%. The spot
exchange rate is 40.9 THB/EUR, and you expect that in the next 3
months (90 days) the exchange rate will not move much, moving to
42.1 THB/EUR. Your borrowing capacity is 2 million EUR and 50
million THB. Based on this information, you decide to...

You are looking at the markets for THB (Thai bahts) and EUR. You
observe that the bid/ask interest rates in Thailand are 20%/22%,
and the bid/ask interest rates on the euro are 2%/4%. The spot
exchange rate is 40.9 THB/EUR, and you expect that in the next 3
months (90 days) the exchange rate will not move much, moving to
42.1 THB/EUR.
Your borrowing capacity is 2 million EUR and 50 million THB.
Based on this information, you decide to...

You are looking at the markets for THB (Thai bahts) and EUR. You
observe that the bid/ask interest rates in Thailand are 20%/22%,
and the bid/ask interest rates on the euro are 2%/4%. The spot
exchange rate is 40.1 THB/EUR, and you expect that in the next 3
months (90 days) the exchange rate will not move much, moving to 42
THB/EUR. Your borrowing capacity is 2 million EUR and 50 million
THB. Based on this information, you decide to...

You are looking at the markets for THB (Thai bahts) and EUR. You
observe that the bid/ask interest rates in Thailand are 20%/22%,
and the bid/ask interest rates on the euro are 2%/4%. The spot
exchange rate is 40.7 THB/EUR, and you expect that in the next 3
months (90 days) the exchange rate will not move much, moving to
41.2 THB/EUR.
Your borrowing capacity is 2 million EUR and 50 million THB.
Based on this information, you decide to...

You have a borrowing capacity of 5 million USD, and 500 million
JPY.
You observe that the bid/ask interest rate quote on USD is
1%/3%. The bid/ask interest rate quote on the JPY is 0.5%/2%. The
spot exchange rate is 86.6 JPY/USD, and you expect that the USD is
going to appreciate to 95.9 JPY/USD over the next 6 months (180
days).
If you conduct a speculative trade on your expectations of
exchange rate change, and your expectations are correct,...

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.

Currency
Spot quote
Euro (EUR/USD)
1.1278 - 1.1281
British pound (GBP/USD)
1.2845 - 1.2848
Swiss franc (USD/CHF)
1.0020 – 1.0022
Japanese yen (USD/JPY)
110.41 – 110.44
Dominican peso (USD/DOP)
50.540 – 50.600
Part 2. Forward exchange rates
1. If the 3-month forward bid and ask quotes for the British
pound are 15 21, what are the 3-month forward bid and ask exchange
rates?
2. How many US dollars will a customer that enters a 3-month
forward contract to buy £1...

You observe the following exchange rate quotes:
$ 1.1830 / EUR
$ 1.5240 / GBP
GBP 0.7815 / EUR
If you start with $ 1 million, what arbitrage profit in dollars
can you make using triangular arbitrage?
Please show work

You and your sister, Jane, plan to participate in the “Study
Abroad” program this winter. You plan to go to Frankfurt, Germany
and Jane will visit Tokyo, Japan. Both of you need to transfer your
USD to the respective foreign currency right now. Here is the
market data: EURUSD spot rate: the big figure is 1.19; market
quotes are: 92/95. USDJPY spot rate: the big figure is 106; market
quotes are: 65/68. a. What is the exchange rate that you...

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