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You are a hedge fund looking for arbitrage opportunities between the spot FX market and 6 month FX forwards and money markets. You observe the
You are a hedge fund looking for arbitrage opportunities between the spot FX market and 6 month FX forwards and money markets. You observe the following quotes from market makers in these markets for Danish Krone (DKK) and US dollars (USD): Bid Ask S(DKK/USD) 6.1010 6.1020 Fom(DKK/USD) 6.1111 6.1121 6m Lending Rate 6m Borrowing Rate DKK 0.58%pa 0.68%pa USD 0.40%pa 0.50%pa You can borrow a present value of up to USD 1 million or lend a present value of up to USD 1 million by borrowing in DKK. At these prices, you can make a certain DKK profit in 6 months' time (to the nearest 50 DKK) of: You are a hedge fund looking for arbitrage opportunities between the spot FX market and 6 month FX forwards and money markets. You observe the following quotes from market makers in these markets for Danish Krone (DKK) and US dollars (USD): Bid Ask S(DKK/USD) 6.1010 6.1020 Fom(DKK/USD) 6.1111 6.1121 6m Lending Rate 6m Borrowing Rate DKK 0.58%pa 0.68%pa USD 0.40%pa 0.50%pa You can borrow a present value of up to USD 1 million or lend a present value of up to USD 1 million by borrowing in DKK. At these prices, you can make a certain DKK profit in 6 months' time (to the nearest 50 DKK) of
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