You are running the trading desk at a large, high-grade investment bank. You have the following...
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You are running the trading desk at a large, high-grade investment bank. You have the following rates available to you Spot Euro/USD Exchange Rate: Xo = 0.8 Euro/USD • 3-month Forward Euro/USD Rate: F0,3mth = 0.7936 Euro/USD • 1-month US (Dollar) Risk-free Interest Rate: rus, 0, 1mth ● • 3-month US (Dollar) Risk-free Interest Rate: I us, 0, 3mth = 3% = = 6% Assume that there are no transaction costs, and that you can either buy or sell at these exchange rates. Also, the interest rates above are quoted in annualized, continuously compounded form, and are the same for borrowing or lending. What must the 3-month European interest rate (annualized continuously compounded), denoted by r be for there to be no arbitrage? EURO, 0, 3mth' You are running the trading desk at a large, high-grade investment bank. You have the following rates available to you Spot Euro/USD Exchange Rate: Xo = 0.8 Euro/USD • 3-month Forward Euro/USD Rate: F0,3mth = 0.7936 Euro/USD • 1-month US (Dollar) Risk-free Interest Rate: rus, 0, 1mth ● • 3-month US (Dollar) Risk-free Interest Rate: I us, 0, 3mth = 3% = = 6% Assume that there are no transaction costs, and that you can either buy or sell at these exchange rates. Also, the interest rates above are quoted in annualized, continuously compounded form, and are the same for borrowing or lending. What must the 3-month European interest rate (annualized continuously compounded), denoted by r be for there to be no arbitrage? EURO, 0, 3mth'
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Related Book For
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins
Posted Date:
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