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1. Below is a table of 3 currencies and their value versus the US Dollar. The 2-year US interest rate is 2% country China
1. Below is a table of 3 currencies and their value versus the US Dollar. The 2-year US interest rate is 2% country China Japan Mexico currency Chinese Renminbi Japanese Yen Mexican Peso symbol CNY JPY MXN BUY SPOT spot fx vs USD SELL SPOT 6.36 136 19.6 foreign 2 year interest rate a. Identify the one country that offers an arbitrage opportunity here. b. What would you do to exploit the opportunity? Specifically, which currency would you buy/sell 2 years forward? And which currency would you buy/sell in the spot market? 6.25% 0.10% 7.00% SELL 2YR FORWARD BUY 2YR FORWARD 2 year forward fx rate 6.901 128.25 21.569
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a To identify an arbitrage opportunity we need to check if the sum of interest rate differentials an...
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International Economics Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz
11th Edition
134519574, 9780134521046 , 978-0134519579
