Question
(fill in the blanks with select answer options) Question 1. The first step in the arbitrage trade is to borrow in Select: [CAD or USD]
(fill in the blanks with select answer options)
Question 1.
The first step in the arbitrage trade is to borrow in Select: ["CAD" or "USD"] at the rate of Select: ["4%", or " 5%", or "7%", or "8%"]
Question 2.
The next step is to convert the borrowed money into Select : ["USD", "CAD"] and invest it an account offering Select: ["5%", "7%", "8%", "4%"] interest rate
Question 3.
In 1 year, you will have the proceeds from your loan. You will convert that at:
a. The forward rate of 1.8
b. The spot rate of 1.75
c. The spot rate in 1 year
Question 4.
Assuming you started with $1 million USD, what is your profit in USD in 1 year?
Use this date for the following questions - Spot (CAD/USD)=1.75 - 1 Year Forward (CAD/USD) =1.80 - 1 Year Canadian interest rate of 8% in Canadian Dollars (CAD) - 1 Year US interest rate of 4% in US Dollars (USD)Step by Step Solution
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