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Please solve and answer question fully for a rating. Thank you. Suppose you are a currency trade who specializes in the USDMXN pair. Right now,
Please solve and answer question fully for a rating. Thank you.
Suppose you are a currency trade who specializes in the USDMXN pair. Right now, the spot price for USDMXN is trading at 22.4532, the 3-month forward is trading at 22.7154 and the 6-month forward is trading at 22.9458. You usually trade with three counterparties UBS, ANZ and Standard Chartered. They provide a daily report of the rates they are willing to take deposits or make loans at. The latest report looks like this: UBS 0.2501% 0.3000% USD 3 Months 6 Months 3 Months 6 Months ANZ Bank 0.2401% 0.3100% 5.0700% 5.9700% Standard Chartered Bank 0.2705% 0.2950% 4.9800% 5.7000% MXN 5.0601% 5.8800% As an example, this table can be read as: UBS is paying/charging a 0.2501% annual interest rate for a 3-month deposit or a 3-month loan in U.S. dollars, while they would be charging a 5.88% annual interest rate for a 6-month deposit or a 6-month loan in Mexican peso. If arbitrage is possible, how much money do you stand to earn? Suppose that once you choose a bank all loans and all deposits must be done with the same entity. Also suppose that you can trade/invest 10 million USD. Use six decimal points in your calculations. Suppose you are a currency trade who specializes in the USDMXN pair. Right now, the spot price for USDMXN is trading at 22.4532, the 3-month forward is trading at 22.7154 and the 6-month forward is trading at 22.9458. You usually trade with three counterparties UBS, ANZ and Standard Chartered. They provide a daily report of the rates they are willing to take deposits or make loans at. The latest report looks like this: UBS 0.2501% 0.3000% USD 3 Months 6 Months 3 Months 6 Months ANZ Bank 0.2401% 0.3100% 5.0700% 5.9700% Standard Chartered Bank 0.2705% 0.2950% 4.9800% 5.7000% MXN 5.0601% 5.8800% As an example, this table can be read as: UBS is paying/charging a 0.2501% annual interest rate for a 3-month deposit or a 3-month loan in U.S. dollars, while they would be charging a 5.88% annual interest rate for a 6-month deposit or a 6-month loan in Mexican peso. If arbitrage is possible, how much money do you stand to earn? Suppose that once you choose a bank all loans and all deposits must be done with the same entity. Also suppose that you can trade/invest 10 million USD. Use six decimal points in your calculationsStep by Step Solution
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