Question
Interest Rate Parity (25 p) Assume you are a Turkish investor who has the headquarter in Istanbul. Currently, you have not sufficient capital for investment.
- Interest Rate Parity (25 p)
Assume you are a Turkish investor who has the headquarter in Istanbul. Currently, you have not sufficient capital for investment. However, you intend to operate with 1.000.000 Turkish Lira (TL) that will be provided by a domestic bank. Given the information in Table 3 elaborate an arbitrage strategy to achieve some riskless profit. How much is your riskless profit from your strategy? Is it worth to undertake the strategy?
Table 3.
| Spot Rate of 1 USD (S) | 3,900 |
| Forward Rate of 1 USD (F) | 4,120 |
| Interest rate on USD Deposits (r) | 0,089 |
| Interest rate on TL Deposits (r) | 0,150 |
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