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Suppose that the annual interest rate is 2.5 percent in Korea and 4.2 percent in Germany, and that the spot exchange rate is Won1933.2/ and
- Suppose that the annual interest rate is 2.5 percent in Korea and 4.2 percent in Germany, and that the spot exchange rate is Won1933.2/ and the forward exchange rate, with one-year maturity, is W1915.5/. Assume that a trader can borrow up to 2,000,000 or Won3,866,400,000.
- Does the interest rate parity hold? Show your work.
- Is there an arbitrage opportunity? (covered interest arbitrage)
- If there is an arbitrage opportunity, what steps should we take in order to make an arbitrage profit?
- What will be our maximum profit?
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Competitor Analysis In Financial Services
Authors: Ian Youngman
1st Edition
1855733315,1782420053
