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+ N4007_Finx C Chegg Study Order Confirmati x 1007_FinalAssessment_1920s1.pdf QUESTION 2 HAS THREE PARTS (A, B, C) FOR A TOTAL OF 20 MARKS. Bill Steam,

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+ N4007_Finx C Chegg Study Order Confirmati x 1007_FinalAssessment_1920s1.pdf QUESTION 2 HAS THREE PARTS (A, B, C) FOR A TOTAL OF 20 MARKS. Bill Steam, a currency trader of multibillion-dollar hedge fund, Axe Capital based in New York, is tasked to make some arbitrage profits from interest rate differentials on the Norwegian krone (NOK) and the US dollar (USD). He observes the following market rates and wonders whether he can make some arbitrage profits in the coming 90 days. Exhibit 3: Market data Arbitrage funds available Spot exchange rate (NOK/USD) 90-day forward contract rate (NOK/USD) 90-day USD interest rate (annualized) 90-day NOK interest rate (annualized) USD 30,000,000 6,0312 6.0186 5.00% 4.45% (2A) Calculate the equilibrium forward rate of NOK/USD based on interest rate parity. [3 marks (2B) From your answer to question (2A), explain how Bill can execute a covered interest arbitrage trade (no calculations necessary). [2 marks] (20) Calculate the potential profits of the suggested trade from question (2B). [15 marks + N4007_Finx C Chegg Study Order Confirmati x 1007_FinalAssessment_1920s1.pdf QUESTION 2 HAS THREE PARTS (A, B, C) FOR A TOTAL OF 20 MARKS. Bill Steam, a currency trader of multibillion-dollar hedge fund, Axe Capital based in New York, is tasked to make some arbitrage profits from interest rate differentials on the Norwegian krone (NOK) and the US dollar (USD). He observes the following market rates and wonders whether he can make some arbitrage profits in the coming 90 days. Exhibit 3: Market data Arbitrage funds available Spot exchange rate (NOK/USD) 90-day forward contract rate (NOK/USD) 90-day USD interest rate (annualized) 90-day NOK interest rate (annualized) USD 30,000,000 6,0312 6.0186 5.00% 4.45% (2A) Calculate the equilibrium forward rate of NOK/USD based on interest rate parity. [3 marks (2B) From your answer to question (2A), explain how Bill can execute a covered interest arbitrage trade (no calculations necessary). [2 marks] (20) Calculate the potential profits of the suggested trade from question (2B). [15 marks

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