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Hints: Problem 2: Find the arbitrage first in Exhibit 2. Then use Exhibit 1 to start with dollars, convert them, and perform the arbitrage. Problem
Hints: Problem 2: Find the arbitrage first in Exhibit 2. Then use Exhibit 1 to start with dollars, convert them, and perform the arbitrage. Problem 4: As the case explains a "dollar discount" is a situation where the U.S. dollar trades at a forward discount against another currency. See Exhibits 1-3
- Are the dealer quotes shown in Exhibit 1 direct or indirect? IF DM1,000,000 were sold spot, how many dollars would be received? When would settlement normally take place?
- Examine the cross-spot rates shown in Exhibit Are there any triangular arbitrage opportunities among these currencies (assume deviations from theoretical cross rates of 5 points or less are attributable to transaction costs)? How much profit could be made on a $5million transaction?
- What would be the $/SDR bid if the SDR appreciates 15% against the dollar ? What would the SDR/$ offer rate if the SDR appreciates 15%?
- Which currencies are at a dollar discount and which are at a dollar premium? What are the outright forward rates for the pound? For the French Franc? Using the midpoints of bid-ask spreads, what are the forward premia or discount on an annualized percentage basis for both these currencies?
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