Question
A Foreign currency trader at the bank's JX desk calls to inform you that TD Bank is quoting $1.22/1, and Bank of America is offering
A Foreign currency trader at the bank's JX desk calls to inform you that TD Bank is
quoting $1.22/1, and Bank of America is offering $1.40/1. The trader also noticed that
Credit Agricole is making market in pound sterling and Euros at 1.20/1.
a.Show this trader how you would use $1 million to conduct a triangular arbitrage to profit from the deviation (if any) of the implied cross rate of the /, from the rate quoted by Credit Agricole.
b.Suppose you observed that the 3-month forward rate quote from TD Bank is $1.30/1, calculate the forward premium (discount) implied by the quote.
c.What do investors expect to happen to the value dollar in the next three months?
Please show each Step.
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