Question
Refer to the table below. Assume that you are based in Australia and that you can only invest in treasury notes. No other form of
Refer to the table below. Assume that you are based in Australia and that you can only invest in treasury notes. No other form of lending or borrowing is allowed. Are there any opportunities for covered interest arbitrage?
| Australia | Switzerland | Britain | United States | |
| Spot Rate | A$1.40/SFR | A$1.30/GBP | A$1.24/USD | |
| 1-year Forward Rate | A$1.36/SFR | A$1.24/GBP | A$1.24/USD | |
| 1-year Treasury Note Rate | 3% | 3.15% | 4% | 4% |
| A. | Yes, start by buying SFR and investing in Swiss treasury notes. | |
| B. | Yes, start by buying USD and investing in US treasury notes. | |
| C. | Yes, start by buying GBP and investing in British treasury notes. | |
| D. | Options A and C. | |
| E. | There are no arbitrage opportunities. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Choose Wisely
Authors: Eliot Dylan Marr
1st Edition
1498416365, 978-1498416368
