Interest rate parity for asset managers and hedge fund arbitrageurs. You have been given the following information:
Question:
Interest rate parity for asset managers and hedge fund arbitrageurs. You have been given the following information:
Taking the perspective from a U.S.-based asset manager or hedge fund arbitrageur:
a. In which commercial paper would you invest?
b. In which currency would you borrow?
c. How would you arbitrage?
d. What is the profit from interest arbitrage per dollar borrowed?
Transcribed Image Text:
is i S(0) F(90) 3% 6% 2.0000 1.9815 where: is = Annual interest rate on three-month U.S. dollar commercial paper i = Annual interest on three-month British-pound commercial paper S(0) = Spot dollar price of one pound sterling F(90) = Forward dollar price of one pound sterling for delivery in 90 days
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Related Book For
International Corporate Finance Value Creation With Currency Derivatives In Global Capital Markets
ISBN: 9781119550464
2nd Edition
Authors: Laurent L. Jacque
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