Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As an arbitrageur in the FX market, you are checking the Australian Dollar (AUD) Indian Rupee(INR) pair. As of today (31 May 2022), you observe

As an arbitrageur in the FX market, you are checking the Australian Dollar (AUD) Indian Rupee(INR) pair. As of today (31 May 2022), you observe a spot exchange rate of 55.91 INR per AUD. In Australia the risk-free rate is now at 3.50%, while in India is at 3.98%. Those interest rates are per annum, with continuous compounding. You see the following forward rates on your screen: Maturity Rate September 2022. 55.3505 November 2022 56.0444 Is there an arbitrage profit opportunity? If so, how could you take advantage of it? Note: Ignore transaction costs and assume the forward contracts expire at the of the respective month.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance For Nonfinancial Managers Beginners Handbook For Finance

Authors: Murugesan Ramaswamy

1st Edition

1516973801, 978-1516973804

More Books

Students also viewed these Finance questions