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Calculate the f90 irp

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Reference no: EM132898018

Mukidi was in Orchard Road with his family to visit the Universal Studio Park. While in the Universal Studio Park, Mukidi saw a counter of Bank of Singapore. At that bank, Mukidi saw that the spot rate was Rp10.X00/Sin$ and the F90 was Rp11,100/Sin$. From the newspaper that he read, Mukidi got information that the interest rate in Singapore was 2.02% p.a., while in Jakarta it was 6.02% pa. Mukidi realized that he could get an opportunity to have profit based on the situation.

Required:

Explain how can Mukidi get profit from the situation, with the principle of 1,000,000 in any of these currencies.

Hint:

a. Calculate the F90 IRP.

b. Decide where to invest.

c. Decide where to borrow.

d. Construct the diagram of the arbitrage.

e. Calculate Mukidi's profit in currency (nominal).

f. Calculate Mukidi profit in percentage.

Reference no: EM132898018

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