Solution-Placed an order to sell the position

Placed an order to sell the position

Reference no: EM131213820

The largest hedge fund company in America and I entered into a long position at exactly the same time at 10:20 am this morning in the same security. At 3:00 pm both of us placed an order to sell the position. The spot rate is $1 = 4 reals. You find that the interest rate in Brazil is 10% while it is 1% in US. You expect the exchange rate to be $.3 real a year from now. So, you borrow a million USD convert it to reals and get 4 million reals. You will then invest this at 10% for a year to receive 4.4 million reals in a year. Then you will covert it back to USD and will get $1.023 million. You will pay back the loan with 1% interest and will still have over 13000 USD remaining. Have you just identified an arbitrage opportunity? Explain.

Reference no: EM131213820

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Placed an order to sell the position

Reference no: EM131213820

Reference no: EM131213820

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