Question 1 Mrs Watanabe has been successful in trading Japanese yen for other currencies in recent years. She observes the current market prices: Spot exchange rates: USD1.3005/GBP-USD1.3015/GBP JPY167.50/GBP-JPY167.60/GBP Three-month interest rates: 8 pts United States dollar deposits/loans: 1.25% -1.55% p.a. Japanese yen deposits/loans: 0.55%-0.65% p.a. British pound deposits/loans: 1.75%-2.00% p.a. United States dollar deposits/loans: 1.25% -1.55% p.a. Japanese yen deposits/loans: 0.55% -0.65% p.a. British pound deposits/loans: 1.75% -2.00% p.a. A. If Citibank is quoting JPY129.05/USD-JPY129.11/USD, is there a triangular arbitrage opportunity? If so, how would Mrs Watanabe exploit it and what would be the percentage return? Show all working. (4 points) B. Mrs Watanabe observes that the 3-month swap points for JPY/GBP are 110/100. Can she do a covered interest arbitrage? If so, how would she exploit it and what would be her percentage return? Show all working. (4 points) Edit View Insert Format Tools Table 12pt Paragraph O E BIUA 2TV A : 30C Mostly cloud Question 1 Mrs Watanabe has been successful in trading Japanese yen for other currencies in recent years. She observes the current market prices: Spot exchange rates: USD1.3005/GBP-USD1.3015/GBP JPY167.50/GBP-JPY167.60/GBP Three-month interest rates: 8 pts United States dollar deposits/loans: 1.25% -1.55% p.a. Japanese yen deposits/loans: 0.55%-0.65% p.a. British pound deposits/loans: 1.75%-2.00% p.a. United States dollar deposits/loans: 1.25% -1.55% p.a. Japanese yen deposits/loans: 0.55% -0.65% p.a. British pound deposits/loans: 1.75% -2.00% p.a. A. If Citibank is quoting JPY129.05/USD-JPY129.11/USD, is there a triangular arbitrage opportunity? If so, how would Mrs Watanabe exploit it and what would be the percentage return? Show all working. (4 points) B. Mrs Watanabe observes that the 3-month swap points for JPY/GBP are 110/100. Can she do a covered interest arbitrage? If so, how would she exploit it and what would be her percentage return? Show all working. (4 points) Edit View Insert Format Tools Table 12pt Paragraph O E BIUA 2TV A : 30C Mostly cloud