Explain and diagram the specific steps he must take

Reference no: EM133492465

Case: Mr. A a foreign exchange trader in ny is exploring covered interest arbitrage possibilities. He wants to invest $3500,000 or its yen equivalent in a covered interest arbitrage between U.S dollar and Japanese yen. He face the following exchange rate and interest rate quotes.

Spot exchange rate Y141.50/$

90 day dollar interest rate: 6.75%

90 day yen interest rate: 3.25%

90 day forward exchange rateY136.50/$

Question 1: Is there CIA possibility? Answer question first

Question 2: Explain and diagram the specific steps he must take to make a covered interest arbitrage profit. Show currency is for borrowing and which currency is for investment. Show profit in $.

Question 3: If the spot exchange rate is expected to be Y145.80/$. Show an uncovered interest arbitrage profit. Show which currency is for borrowing and which currency is for investment. Show the profit in $.

Reference no: EM133492465

Questions Cloud

Justify your reasoning and selection criteria : Justify your reasoning and selection criteria. You will present your case individually during the live class in Week 8. Your final paper needs to be

Does this arrangement meet the definition of a derivative : A company has entered into a forward contract for the purchase of gold, in 2 years, for $1300/oz. Does this arrangement meet the definition of a derivative?

Describe the major financial institutions engaged : Describe the major financial institutions engaged in getting the savings of individuals into business firms that want to make investments to maintain

Identify the effects of this individual leadership : Describe the leader in question and the situation in which you worked with them. Note: Do not identify the individual or the organization where they worked.

Explain and diagram the specific steps he must take : Explain and diagram the specific steps he must take to make a covered interest arbitrage profit. Show currency is for borrowing and which currency is for invest

Write recommendations based on this information : Write Recommendations based on this information - providing the family ? of John's salary as non-taxable income should he become disabled

Are coca-colas marketing expenditures a fixed cost : Are Coca-Cola's marketing expenditures a fixed cost, variable cost, or mixed cost? (Give justification for your answer)

How the supervision contract is not being upheld : Review the "Supervisee's Bill of Rights" in Chapter 9 of the textbook. Describe how you would proceed if you were a student intern and needed to confront

What is the primary drawback of the real-rate approach : inflation and the nominal approach, where real cash flows are adjusted to nominal cash flows. What is the primary drawback of the real-rate approach

User Account

All Pages