Question
1)Citibank quotes USD1.8500/GBP, Barclays quotes EUR1.5000/GBP, and Dresdner quotes USD1.2000/EUR. If you have USD 1,000,000 to invest, find the triangular arbitrage profit. 2)Amanda Smyth is
1)Citibank quotes USD1.8500/GBP, Barclays quotes EUR1.5000/GBP, and Dresdner quotes USD1.2000/EUR. If you have USD 1,000,000 to invest, find the triangular arbitrage profit.
2)Amanda Smyth is a foreign exchange dealer for a bank in Texas. She has USD 1,000,000 for a short-term money market investment and wonders if she should invest in U.S. dollars for six months or make a covered interest arbitrage (CIA) investment in the Japanese yen. If she makes the CIA investment, what is the total amount that Amanda will earn at maturity? Assume the following rates.
Spot Rate | 6-mo Forward Rate | USD 6-mo Interest Rate | JPY 6-mo Interest Rate | |||||
JPY120/USD | JPY118.25/USD | 6% per annum | 4% per annum |
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