Question
Suppose you observe the following: S(EUR/USD) 0.9514 F(EUR/USD) 0.9478 i(US) 1.75% p.a i(EU) 2.00% p.a The observed forward rate is for a 9-month maturity. Show
Suppose you observe the following:
| S(EUR/USD) | 0.9514 |
| F(EUR/USD) | 0.9478 |
| i(US) | 1.75% p.a |
| i(EU) | 2.00% p.a |
The observed forward rate is for a 9-month maturity.
Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of EUR. Also determine the size of your arbitrage profit. Suppose you can borrow either 1.5 mil USD or 1.5 mil EUR.
Show your workings. Keep 4 decimal places for exchange rate calculation.
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Islamic FinanceA Practical Perspective
Authors: Nafis Alam, Lokesh Gupta, Bala Shanmugam
1st Edition
3319665588, 9783319665580
