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Rus Neft, the national oil company of Russia, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is
Rus Neft, the national oil company of Russia, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Russian company, it operates within the global oil market. Ana Kirilenkova is a currency trader for Rus Neft, and has immediate use of either $5 million (or the Russian ruble equivalent). She is faced with the following market rates, and she would like to make arbitrage profit in the coming 90 days. Spot exchange rate (RUB/$): 73.3103 3-month forward rate (RUB/$): 71.9055 U.S. dollar 3-month interest rate: 7.250% Russian ruble 3-month interest rate: 5.500% a) Explain is it possible for Ana to make arbitrage profit based on the above rates. (Please show your reasoning and proof). If yes, explain what kind of arbitrage strategy Ana can use? b) Show the detailed steps of the arbitrage strategy and calculate the arbitrage profit. Is this strategy risk free and why
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