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Question 1 You are considering uncovered interest arbitrage between the pound ( GBP ) and the US dollar ( Question 1 You are considering uncovered
Question
You are considering uncovered interest arbitrage between the pound
GBP
and the US dollar Question
You are considering uncovered interest arbitrage between the pound GBP and the US dollar USD
The following data is available to you:
Funds available: million GBP
Spot exchange rate: USD per GBP
Spot exchange rate one year ago: USD per GBP
USD month interest rate:
GBP month interest rate:
a Calculate the profit that would be made if the exchange rate remains at its current level in
months' time.
b How would the profit figure change if the US dollar continues to weaken at the same rate as it has
done over the previous year?
USD
The following data is available to you:
Funds available:
million GBP
Spot exchange rate:
USD per GBP
Spot exchange rate one year ago:
USD per GBP USD
month interest rate:
GBP
month interest rate:
Required:
a
Calculate the profit that would be made if the exchange rate remains at its current level in
months
time
b
How would the profit figure change if the US dollar continues to weaken at the same rate as it has done over the previous year?
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