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Explain how jojon can get profit from the situation

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Reference no: EM133147207

Question - Jojon is a foreign-exchange trader in Bank Sapu-Jagad and observing Indonesian and Australian forex market. He identifies that the spot rate is IDR10,222/AUD and the F90 was IDR10,300/AUD. He also gets information that the 3-month interest rate in Australia was 2.22% p.a., while the 3-month interest rate in Jakarta is 6.98% p.a. Jojon realizes that he could get an opportunity to have profit based on this situation.

Required - Explain how Jojon can get profit from the situation, with the available fund of 10,000,000 in any of these currencies.

Hint: a. Decide where to invest and where to borrow, explain your answer.

b. Construct the diagram of the arbitrage.

c. Calculate Jojon's profit in currency (nominal).

d. Calculate Jojon's profit in percentage.

Reference no: EM133147207

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