Maximum amount of eur

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Reference no: EM13826714

Problem:

You are an FX dealer at a major bank. You observe quotes posted by other FX dealers in the market. Each dealer provides bid and ask quotes for EUR as well as a maximum amount of EURs that the dealer is ready to buy or sell at the quoted prices. If in doubt, remember that a dealer will pay you less than what (s)he will ask from you. Dealer A provides quotes for spot market transactions, S(t) Willing to buy and sell up to 10 M EUR @ 1.44 - 1.45 USD/EUR . Dealer B provides quotes for forward market transactions in one year F(t, t+1 year) Willing to buy and sell up to 8 M EUR one year forward @ 1.41 - 1.42 USD/EUR. Assume you can borrow and invest at the following interest rates: 1-year USD interest rate: 1.80% p.a. 1-year EUR interest rate: 1.90% p.a. Can you benefit from these prices? If so, what is the maximum profit? Would your profit be certain? Describe all transactions you would have to make!

Total Word Limit: 213 Words

Reference no: EM13826714

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