I POST once but i know calculations were all wrong The three month dollar interest rate in New York is 6 40 per annum Alternatively, the three month euro interest rate in Frankfort is 4 40 p a The current $ spot exchange rate is $1 0840 The euro three month forward rate is quoted at $1 0980 Show how a U S arbitrageur would exploit a possible covered interest arbitrage opportunity with a nominal $60,000,000 Dont start with the formula Explain in your own words and in detail the transactions (steps) the arbitrageur would execute with the calculations for each step, and then calculate the profit loss the arbitrager would make or face Use the Interest Rate Parity formula (IRP) to question whether or not the interest rate parity condition is violated (Make sure you use the correct relationship and pose the question correctly You dont know the answer upfront, you cant claim equality until you check it If violated, at what 3 month forward rate would it hold Use the International Fisher Effect (IFE) to find what should be the expected three month spot exchange rate of dollars against the euro (If not performing chain calculations, use interest rates up to four decimal places, and again use the proper relationship that describes IFE) Assume that the 3 month real rate of interest in both the euro zone and the U S is 1 20 per annum use the Fisher Effect (FE) to calculate the expected annualized three month rates of inflation in the U S and euro zone (Expressed as a p a up to four decimal places) Use the results in question 4 above and the Relative Purchasing Power Parity (RPPP) relationship to estimate the expected three month spot exchange rate of the dollars against the euro answers in questions 2, 3, and 5 should all be equal at the end

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I POST once but i know calculations were all wrong. The three-month dollar interest rate in New York is 6.40% per annum. Alternatively, the three-month

I POST once but i know calculations were all wrong.

The three-month dollar interest rate in New York is 6.40% per annum. Alternatively, the three-month euro interest rate in Frankfort is 4.40% p.a. The current $/ spot exchange rate is $1.0840/. The euro three-month forward rate is quoted at $1.0980/.

Show how a U.S. arbitrageur would exploit a possible covered interest arbitrage opportunity with a nominal $60,000,000. Dont start with the formula. Explain in your own words and in detail the transactions (steps) the arbitrageur would execute with the calculations for each step, and then calculate the profit/loss the arbitrager would make or face.
Use the Interest Rate Parity formula (IRP) to question whether or not the interest rate parity condition is violated. (Make sure you use the correct relationship and pose the question correctly. You dont know the answer upfront, you cant claim equality until you check it. If violated, at what 3-month forward rate would it hold?
Use the International Fisher Effect (IFE) to find what should be the expected three-month spot exchange rate of dollars against the euro (If not performing chain calculations, use interest rates up to four decimal places, and again use the proper relationship that describes IFE).
Assume that the 3-month real rate of interest in both the euro zone and the U.S. is 1.20% per annum; use the Fisher Effect (FE) to calculate the expected annualized three-month rates of inflation in the U.S. and euro zone (Expressed as a % p.a. up to four decimal places).
Use the results in question 4 above and the Relative Purchasing Power Parity (RPPP) relationship to estimate the expected three-month spot exchange rate of the dollars against the euro

answers in questions 2, 3, and 5 should all be equal at the end