Overview Your team works for a renowned FX trading company, Snowy River Ltd The company specialises in trading major currencies such as Australian Dollar (AUD), British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Swiss Franc (CHF) and US Dollar (USD) The company also trades various foreign exchange related derivatives for its clients In addition, it provides general advice to other clients who trade for themselves The firms chief trading executive, Pete Fernandes, has requested your teams expertise in trading foreign currencies in order to improve firm's trading strategy and profits You have been asked to prepare a detailed report in this regard In your report you must address the following questions Question 3 The firms senior management has taken note of your expertise in arbitrage trading You have been asked to identify potential arbitrage opportunities based on the differences in exchange rates in table 4 and 5 Suppose that the actual forward rates for the end of October 2020 are as follows Comm Terms Bid Ask Opinion ( over under fairly valued ) Suggested Strategy AUD CAD 0 9447 0 9455 GBP USD 1 3100 1 3105 NZD USD 0 6510 0 6513 Table 5 Actual forward FX rates for the end of October 2020 Inform the company whether the commodity currencies listed in Table 5 are over , under , or fairly valued compared to the implied forward rates estimated in Table 4 1 5 Marks , and what is your suggested strategy to the top management (buy or sell the commodity currency) 1 5 Marks If there is any arbitrage opportunity available between the implied forward rates estimated in Table 4 and the actual forward rates listed in Table 5, how much profit can you generate for the company as a price taker with 50,000,000 units of currency ( choose the most profitable option ) 2 Marks To minimise the transaction costs involved you can only exploit arbitrage opportunities between two exchange rates (i e , No Triangular Arbitrage opportunity allowed ) Finally, you must convert profit, if any, to AUD using the mid rates estimated in Table 4 1 Mark

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Overview Your team works for a renowned FX trading company, Snowy River Ltd. The company specialises in trading major currencies such as Australian Dollar (AUD),

Overview

Your team works for a renowned FX trading company, Snowy River Ltd. The company specialises in trading major currencies such as Australian Dollar (AUD), British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Swiss Franc (CHF) and US Dollar (USD). The company also trades various foreign exchange related derivatives for its clients. In addition, it provides general advice to other clients who trade for themselves. The firms chief trading executive, Pete Fernandes, has requested your teams expertise in trading foreign currencies in order to improve firm's trading strategy and profits. You have been asked to prepare a detailed report in this regard. In your report you must address the following questions:

Question 3

The firms senior management has taken note of your expertise in arbitrage trading. You have been asked to identify potential arbitrage opportunities based on the differences in exchange rates in table 4 and 5. Suppose that the actual forward rates for the end of October 2020 are as follows:

Comm / Terms	Bid	Ask	Opinion (over/under/ fairly valued)	Suggested Strategy
AUD/CAD	0.9447	0.9455
GBP/USD	1.3100	1.3105
NZD/USD	0.6510	0.6513

Table 5: Actual forward FX rates for the end of October 2020.

Inform the company whether the commodity currencies listed in Table 5 are over-, under-, or fairly valued compared to the implied forward rates estimated in Table 4 [1.5 Marks], and what is your suggested strategy to the top management (buy or sell the commodity currency)? [1.5 Marks]. If there is any arbitrage opportunity available between the implied forward rates estimated in Table 4 and the actual forward rates listed in Table 5, how much profit can you generate for the company as a price taker with 50,000,000 units of currency (choose the most profitable option) [2 Marks]. To minimise the transaction costs involved you can only exploit arbitrage opportunities between two exchange rates (i.e., No Triangular Arbitrage opportunity allowed). Finally, you must convert profit, if any, to AUD using the mid rates estimated in Table 4 [1 Mark].