Question
Forward Exchange Rates You are running the trading desk at a large, high-grade investment bank. You have the following rates available to you: Spot Yen/Dollar
Forward Exchange Rates
You are running the trading desk at a large, high-grade investment bank. You have the following rates available to you:
| Spot Yen/Dollar exchange rate | 120.44 Yen/Dollar |
| 3-month Forward Yen/Dollar rate | 119.09 Yen/Dollar |
| 1-month US (Dollar) interest rate | 5.50% |
| 3-month US (Dollar) interest rate | 6.00% |
The above interest rates are annualized and continuously-compounded.
What must be the 3-month Japanese (Yen) interest rate (annualized, continuously-compounded) so that there are no arbitrage opportunities?
Suppose that the annualized, continuously-compounded 3-month Yen interest rate is 1%. Is there an arbitrage opportunity? If yes, describe exactly what transactions you would undertake at these prices/rates to lock in an arbitrage profit.
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Renewable Energy Finance Theory And Practice
Authors: Santosh Raikar, Seabron Adamson
1st Edition
0128164417, 9780128164419
