A trader observes the following market information and sees an opportunity to make an arbitrage profit. The

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A trader observes the following market information and sees an opportunity to make an arbitrage profit.

The spot rate is 82 yen per dollar, while the 1-year forward rate is 80.20 yen per dollar. The nominal risk-free rate is 1% in Japan and 2.5% in Canada.

a. Do the relevant calculation for each of the following steps. Calculate:

(1) The number of yen the trader receives if he borrows $1,000,000 and converts it to yen at the current spot rate.

(2) The interest received if he invests the yen at the Japanese 1 year risk-free rate.

(3) The amount of yen (both principal and interest) he will lock into and exchange for dollars in 1 year, using a 1-year forward contract, and the amount of dollars received in 1 year.

(4) The amount of dollars (both principal and interest) he will repay at year end.

(5) The remaining profit.

b. Briefly explain how this arbitrage profit is possible.

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a 1000000 82 82000000 82000000 001 820000 Lock in 82820000 Receives 828200008020 1032668 100000...View the full answer

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Anandh Ravindharan

A computation fanatic who admires the magic and miracles of science in the near vicinity from the spring time of life. On a search for higher education, spotted out mechanical engg, a study with detailed experiments and calculations, and geared it with some innovative and social projects. Once after the academics, have experienced as a professional Mechanical Engineer in a fortune 500 FMCG organization for 1+ years under Projects and Plant Engineering Department. Achievements in an FMCG Industry: · Mastered on a Civil & Structural project worth INR 3 million and assisted on a major Civil & Machinery project worth INR 350 million · Selected and trained on New Product Development (NPD) Activities at corporate head office, Gurgaon · Introduced & Made technical comparison for more than 30 Capex Purchase Orders worth INR 9 million · Developed In-house canteen facilities in the aspect of civil, electrical and machineries · Installed two Fall Arrest Systems, right from design till commissioning · With precise calculation and analysis, increased the Inventory storage capacity of Engg Stores to 412% of existing · Introduced a booklet with the details of all machineries in the plant · Introduced creative solutions for problems faced in plant – which includes customized cattle grid, methods to reduce energy and water consumption. Then, went up ahead and fulfilled the pedagogical dream by slicing the knowledge with the secondary kids in an innovative teaching methodology with an Educational NPO, that has involved in the process of inducing the Creativity and Innovation among the young minds through a Transformational Creativity Workshop, where students will be exposed to some handmade innovative projects, in the theme of Sustainable living, Green Energy, Advancement in technologies (Robotics, E-bike) and Solar Energy. Have mentored more than 1200 students practically in the past 2 years. My teaching methodology will be in an empirical way where students will be put on the shoes of the concepts and will be induced to come out with the solutions through brain storming. This methodology helps them to acquire the answers from their perspective which lasts for a long term than conventional problem solving techniques. Also, Been as one of the two key players and organized a remarkable Dream Awareness Event – Ore Kana, by displaying the dream of more than 5000 participants in art form, to imprint the importance of dream among the students and public. (As a drive to Dr. APJ Abdul Kalam’s vision – India 2020) On the whole, I can brief myself as an an ardent learner and also an analytic analyzer who is passionate on building the educational system by exploring on different teaching techniques.

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Financial Management Theory And Practice

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Question Posted: Jun 14, 2019 08:20 AM

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A trader observes the following market information and sees an opportunity to make an arbitrage profit. The

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a 1000000 82 82000000 82000000 001 820000 Lock in 82820000 Receives 828200008020 1032668 100000...View the full answer

Financial Management Theory And Practice

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