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

image text in transcribed

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. Show all your detailed workings and round to 4 decimal digits at each step

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

International Trade Finance

Authors: Indian Institute Of Banking & Finance

1st Edition

9386394723, 978-9386394729

More Books

Students also viewed these Finance questions

Question

Perform an Internet search. Discuss a company that uses EPLI.

Answered: 1 week ago

Question

How do you feel about employment-at-will policies? Are they fair?

Answered: 1 week ago