Question
[50 pts] Assume you are given the following exchange rates St = 1.054 USD/EUR and St = 1.369 AUD/EUR. (a) What is the cross rate
[50 pts] Assume you are given the following exchange rates St = 1.054 USD/EUR and St = 1.369 AUD/EUR. (a) What is the cross rate USD/AUD? (b) Suppose the 180-day forward rate is Ft,180 = 1.08 USD/EUR. Calculate the forward premium. Does the forward rate contain a premium or a discount? (c) Suppose First National Bank quotes St = 0.81 USD/AUD. Is arbitrage possible and why? (d) If the answer to (c) is yes, describe a triangular arbitrage strategy and determine an arbitrageur's profits.
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Fundamentals of Investments Valuation and Management
Authors: Bradford Jordan, Thomas Miller
7th edition
978-0078096785, 78096782, 978-0077861636, 77861639, 978-0078115660
