James Clark is a foreign exchange trader with Citibank. He notices the following quotes. a. Is the
Question:
James Clark is a foreign exchange trader with Citibank. He notices the following quotes.
a. Is the interest rate parity holding? You may ignore transaction costs.
b. Is there an arbitrage opportunity? If yes, show what steps need to be taken to make arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.
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Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate SFr1.2051/$ SFr1.1922/$ 2.5% per year 2.0% per year
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a For six months i SFr 10 and i 125 the spot exchange rate is 08298SFr and the forward rate is 08388...View the full answer
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