Question

Angela has 1 million NZD and faces the following rates:
EUR/USD=1.1110/12,

USD/NZD=1.4505/09, EUR/NZD= 1.6136/1.6140.

a) Can Angela make a profit by trading the three currencies? If so,
how much profits in terms of NZD

can she make with her own fundsin one round? (Hint: choose the
right bid or ask price for trading)

b) If all traders on the spot market behave like Angela, what would
happen to the spot rates of the

three currencies and why? (Hint: the spread is usually constant on
the forex market, e.g., if Euro

appreciates against US dollar, the spot rates become
EUR/USD=1.1120/22)

Answer #1

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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of U.S. recessions since 1854? ______________________________. 3.
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