1. Today is March 1, 2004. The day-count basis is actual/365. You have the following contracts on...
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1. Today is March 1, 2004. The day-count basis is actual/365. You have the following contracts on your FX book.
CONTRACT A: On March 15, 2004, you will sell 1,000,000 EUR at a price F1 t dollars per EUR.
CONTRACT B: On April 30, 2004, you will buy 1,000,000 EUR at a price F2 t dollars per EUR.
a. Construct one synthetic equivalent of each contract.
b. Suppose the spot EUR/USD is 1.1500/1.1505. The USD interest rates for loans under 1 year equal 2.25/2.27, and the German equivalents equal 2.35/2.36. Calculate the Fi t numerically.
c. Suppose the forward points for F1 t that we observe in the markets is equal to 10/20. How can an arbitrage portfolio be formed?
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Related Book For 
Principles Of Financial Engineering
ISBN: 9780123869685
3rd Edition
Authors: Robert Kosowski, Salih N. Neftci
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