Question
Yujie is an experienced trader in FX markets for one of the major banks in Toronto. She is looking at an opportunity to make arbitrage
Yujie is an experienced trader in FX markets for one of the major banks in Toronto. She is looking at an opportunity to make arbitrage profit and is reviewing several currency rates.
Following quotes and interest rates are available from local market sources
MXN/GBP Spot 24.9354
CAD/GBP Spot 1.6859
INR/EUR Spot 85.0262
CAD/EUR Spot 1.4826
MXN/GBP 1 year futures 29.2365
Risk Free Rate in Germany 1.6%
Risk Free Rate in Canada 4%
Risk Free Rate in UK 1.6%
Risk Free Rate in India 9%
1)What is the interest rate prevailing in Mexico? (0.5 marks)
2)What is the 1year futures rate for MXN/CAD? (0.5 marks)
3)Suppose INR/CAD 1 year futures is quoted as 60.2898 and MXN/CAD 1 year futures 17.7777, show arbitrage details using 1mn. (2 marks)
Step by Step Solution
3.46 Rating (149 Votes )
There are 3 Steps involved in it
Step: 1
1 To find the interest rate prevailing in Mexico we can use the interest rate parity formula textForward Rate textSpot Rate frac1 textDomestic Interest Rate1 textForeign Interest Rate ight Given that ...
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
Business Ethics A Stakeholder And Issues Management Approach
Authors: Joseph W. Weiss
7th Edition
1523091541, 978-1523091546
