all the questions are related to each other, im having trouble solving them. from number 5 through 10
Question 5 (5.26 points) Saved You have $2,000,000 (US dollars) to invest. If you use covered interest arbitrage for a 1-year investment, what will be the amount of U.S. dollars you will have after one year? $1,438,116.00 $2,304,303.80 $2,138,780.49 $2,280,000.00 Question 6 (5.26 points) Saved Continued from the above question, does the cover interest arbitrage work for you as a U.S. investor? (HINT: Calculate the rate of return you (as a investor) get when Implementing the covered interest arbitrage. Compare the rate of return you obtain from implementing the covered interest arbitrage and the rate of return you (as a U.S. Investor) earn by investing in the U.S. directly.) No, the covered interest arbitrage doe not work because the yield is lower than 11%. No, the covered interest arbitrage does not work because the yield is lower than 14%. Yes, the covered interest arbitrage works because the yield is higher than 14%. Yes, the covered interest arbitrage works because the yield is higher than 11%. Question 7 (5.26 points) Assume you're a European investor with 1,000,000. If you use covered interest arbitrage for a 1-year investment, what will be the amount of euros you will have after one year? 1,28,302.94 1,142,753.11 1,00,681.24 1,098,292.68 Question 8 (5.26 points) Continued from the above question, does the cover interest arbitrage work for you as a European investor? (HINT: Calculate the rate of return you (as a European investor) get when implementing the covered interest arbitrage. Compare the rate of return you obtain from implementing the covered interest arbitrage and the rate of return you (as a European investor) earn by investing in the Europe directly.) No, the covered interest arbitrage does not work because the yield is lower than 14% Yes, the covered interest arbitrage works because the yield is higher than 14%. Yes, the covered interest arbitrage works because the yield is higher than 11%. No, the covered interest arbitrage does not work because the yield is lower than 11%. Question 9 (5.26 points) Does Interest Parity hold under the current market condition? Yes. It cannot be determined. No. Question 10 (5.26 points) Assume the following information: Bid C$ in $ (i.e. $/C$) $0.89 MYR in $ (i.e. $/MYR) $0.33 C$ in MYR (i.e. MYR/C$) MYR2.75 Ask $0.90 $0.34 MYR2.76 You have $10,000. Can you use triangular arbitrage to generate a profit? Yes, I can earn arbitrage profits of $64,436.36 by the following strategy: (1) Exchange U.S. dollars to MYR at the Bid rate of $0.33/MYR. (2) Exchange MYR to C$ at the Ask rate of C$2.76/MYR. (3) Exchange C$ to U.S. dollars at the Bid rate of $0.897C$. No, it's impossible to make triangular arbitrage profits. Yes, I can earn arbitrage profits of $83.33 by the following strategy: (1) Exchange U.S. dollars to C$ at the Ask rate of $0.90/C$. (2) Exchange C$ to MYR at the Bid rate of MYR2.75/C$. (3) Exchange MYR to U.S. dollars at the Bid rate of $0.33/MYR. Yes, I can earn arbitrage profits of $62.247.06 by the following strategy: (1) Exchange U.S. dollars to MYR at the Ask rate of $0.34/MYR. (2) Exchange MYR to C$ at the Ask rate of MYR2.76/C$. (3) Exchange C$ to U.S. dollars at the Bid rate of $0.89/C$. 22 Use the following information for the next 5 Questions Current spot rate of euro - $0.79 1-year forward rate of Buro - $0.82 1-year deposit rate in US. -14% 1-year deposit rate in Europe - 11% Question 5 (5.26 points) You have $2,000,000 US dollars) to invest if you use covered interesator 1 year investment, what will be the amount of US dollars you will have to year $143.116.00 O $2,304 303.80 52.13.700.49 52.280.000.00
