Question
a)Consider the market data below: Euro () interest rate 0.75% - 1.5% p.a. Zambia (ZMK) interest rate 10.25% - 10.75% p.a. Spot exchange rate ZMK13.56/
a)Consider the market data below:
Euro () interest rate
0.75% - 1.5% p.a.
Zambia (ZMK) interest rate
10.25% - 10.75% p.a.
Spot exchange rate
ZMK13.56/ - ZMK13.62/
3-month forward exchange rate
ZMK13.65/ - ZMK13.70/
i.Is there an opportunity for covered interest arbitrage if you borrowed 1 million to invest in Zambian Kwacha (ZMK) for 3 months? Clearly explain your answer showing all relevant calculations.
TUT 3[30 %]
ii.What is the range of forward rates for which there will be no arbitrage opportunity from investing in ZMK?
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Fundamentals of Investments Valuation and Management
Authors: Bradford D. Jordan, Thomas W. Miller
5th edition
978-007728329, 9780073382357, 0077283295, 73382353, 978-0077283292
