Question
A Foreign trader at the bank's TX desk calls to inform you that the company TD Bank is quoting $1.20/1, and Bank of America is
A Foreign trader at the bank's TX desk calls to inform you that the company TD Bank is quoting $1.20/1, and Bank of America is offering $1.40/1. The trader also noticed thatCredit Z is also making the market in pound sterling and the use of Euros at 1.20/1.
a. How you would use the $1 million to conduct a triangular arbitrage to profit from the deviation of the implied cross rate of the /, from the rate quoted by Credit Z.
b.You observed that the 3-month forward rate quote from TD Bank is $1.30/1. Calculate the forward premium suggested by the quote.
c.What do the investors expect to happen to the value of the dollar for the next three months?
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