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A 1 A trader, who is considering a 'carry trade' transaction between Sterling ( GBP ) and Polish Zloty ( PLN ) , faces the
A A trader, who is considering a 'carry trade' transaction between Sterling GBP and Polish Zloty PLN faces the following data:
Funds available to borrow:
Spot exchange rates
GBP month interest rate:
PLN month interest rate:
Current UK inflation rate:
Current Polish inflation rate:
Required
million GBP
GBP per USD
PLN per USD
per annum
per annum
per annum
per annum
a Calculate the current PLNGBP cross rate;
b Calculate the profit that would be made if the exchange rate remains at its current level in three months' time;
c How would the profit figure change if the exchange rate varies in line with relative purchasing power parity RPPP as predicted by current inflation?
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