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LaBelle Exchange Group specialized in global investing. The chief trader is always looking out for violations of the interest rate parity relationship between USD and
- LaBelle Exchange Group specialized in global investing. The chief trader is always looking out for violations of the interest rate parity relationship between USD and GBP [sterling]. She knows full well that any violation of the relationship creates an opportunity for arbitrage. She evaluated the following information to compute forward rates and to determine if arbitrage potential exists.
Risk free rate in US > 1.95% 1-year rate
Risk free rate in UK> 2.30% 1-year rate
Current exchange rate > $1.35/
- Compute the 1-year forward exchange rate implied by the risk free US and UK rates.
- If the chief trader is shown a forward rate of $1.38/, is there an opportunity for arbitrage?
- If there is an opportunity for arbitrage, show the three steps to take advantage of this opportunity and COMPUTE the riskless profit.
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A Handbook Of Mutual Fund Investing
Authors: Barry G Dolgin
1st Edition
1456489704, 978-1456489700
