Overview

Your team works for a renowned FX trading company, Snowy River Ltd. The company specialises in trading major currencies such as Australian Dollar (AUD), British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Swiss Franc (CHF) and US Dollar (USD). The company also trades various foreign exchange related derivatives for its clients. In addition, it provides general advice to other clients who trade for themselves. The firm's chief trading executive, Pete Fernandes, has requested your team's expertise in trading foreign currencies in order to improve firm's trading strategy and profits. You have been asked to prepare detailed report in this regard. In your report you must address the following questions:

Question 3[6 marks]

The firm's senior management has taken note of your expertise in arbitrage trading. You have been asked to identify potential arbitrage opportunities based on the differences in exchange rates in table 4 and 5. Suppose that the actual forward rates for the end of October 2020 are as follows: