Question
Statoil, the national oil company of Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a
Statoil, the national oil company of Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar as its functional currency, not the Norwegian krone. Ari Karlsen is a currency trader for Statoil, and has immediate use of either $3 million (or the Norwegian krone equivalent). He is faced with the following market rates, and wonders whether he can make some arbitrage profits in the coming 90 days. | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
| Assumptions |
|
|
|
|
|
|
| |||
| Arbitrage funds available |
|
|
| $3,000,000 |
|
|
| 18,093,600 Krone Equivalent |
| |
| Spot exchange rate (Nok/$) |
|
|
| 6.0312 |
|
|
|
|
| |
| 3-month forward rate (Nok/$) |
|
|
| 6.0186 |
|
|
|
|
| |
| U.S. dollar 3-month interest rate |
|
| 5.000% |
|
|
|
|
| ||
| Norwegian krone 3-month interest rate |
| 4.450% |
|
|
|
|
|
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