Required information The following information is to be used for the following question 1 The current market conditions in the U S and Sweden are summarized as follows Annual interest rates in the U S and Sweden are 3 and 1 , respectively Current spot rate is USD 0 10 SEK 1 00 SEK stands for Swedish krona One year forward rate is USD 0 12 SEK 1 00 You are a Swedish investor who can borrow either USD 100,000 or SEK 1,000,000 If you are a Swedish investor who can borrow either USD 100,000 or SEK 1,000,000 (the equivalent amount at the spot rate), what will be your profit from a covered interest arbitrage opportunity You will want to realize your profit in Swedish krona Enter only the numeric portion of your answer in two decimal places without commas If no arbitrage is possible, enter 0 2) A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year The one year interest rate in the U S is i $ 2 and in the euro zone the one year interest rate is i 6 The one year forward exchange rate is $1 20 1 00 what must the spot rate be to eliminate arbitrage opportunities $1 2471 1 00 $1 20 1 00 $1 1547 1 00 none of the options 3) The current spot exchange rate is $1 55 and the three month forward rate is $1 50 Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1 52 in three months Assume that you would like to buy or sell 1,000,000 What actions do you need to take to speculate in the forward market Multiple Choice Take a long position in a forward contract on 1,000,000 at $1 50 Take a short position in a forward contract on 1,000,000 at $1 50 Buy euro today at the spot rate, sell them forward Sell euro today at the spot rate, buy them forward 4) Doug Bernard specializes in cross rate arbitrage He notices the following quotes Swiss franc dollar SFr1 6081 $ Australian dollar U S dollar A$1 8371 $ Australian dollar Swiss franc A$1 1527 SFr Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose (Do not round intermediate calculations Round your answer to 2 decimal places )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 09, 2024

Required information The following information is to be used for the following question 1. The current market conditions in the U.S. and Sweden are summarized

Required information

The following information is to be used for the following question 1.

The current market conditions in the U.S. and Sweden are summarized as follows. Annual interest rates in the U.S. and Sweden are 3% and 1%, respectively. Current spot rate is USD 0.10 = SEK 1.00. SEK stands for Swedish krona. One-year forward rate is USD 0.12 = SEK 1.00. You are a Swedish investor who can borrow either USD 100,000 or SEK 1,000,000.

If you are a Swedish investor who can borrow either USD 100,000 or SEK 1,000,000 (the equivalent amount at the spot rate), what will be your profit from a covered interest arbitrage opportunity? You will want to realize your profit in Swedish krona. Enter only the numeric portion of your answer in two decimal places without commas. If no arbitrage is possible, enter 0.

2) A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. isi_$= 2%and in the euro zone the one-year interest rate isi= 6%. The one-year forward exchange rate is $1.20 = 1.00; what must the spot rate be to eliminate arbitrage opportunities?

$1.2471 = 1.00
$1.20 = 1.00
$1.1547 = 1.00
none of the options

3) The current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/ in three months. Assume that you would like to buy or sell 1,000,000. What actions do you need to take to speculate in the forward market?

Multiple Choice

Take a long position in a forward contract on 1,000,000 at $1.50/.
Take a short position in a forward contract on 1,000,000 at $1.50/.
Buy euro today at the spot rate, sell them forward.
Sell euro today at the spot rate, buy them forward.

4) Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:

Swiss franc/dollar = SFr1.6081/$

Australian dollar/U.S. dollar = A$1.8371/$

Australian dollar/Swiss franc = A$1.1527/SFr

Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose?(Do not round intermediate calculations. Round your answer to 2 decimal places.)