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What is arbitrage strategy

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Reference no: EM132825908

The USD/BRL=5.496. You can get a 1 year rate in the US for .5%. In Brazil you can get a 1 year rate of 4.35%. The USD/BRL 1 year forward rate is 5.843. What is your arbitrage strategy?

a. Lend at US interest rate

Borrow at the Brazil interest rate
Use forward rate to exchange USD into BRL in 1 year
Use the Spot rate to exchange from BRL into USD today

b. Lend at US interest rate

Borrow at the Brazil interest rate
Use the Forward rate to exchange BRL into USD in 1 year
Use the spot rate to exchange from USD into BRL today

c. Lend at Brazil interest rate

Borrow at the US interest rate
Use the Forward rate to exchange USD into BRL in 1 year
Use the spot rate to exchange from BRL into USD today

d. Lend at Brazil interest rate

Borrow at the US interest rate
Use the Forward rate to exchange BRL into USD in 1 year
Use the spot rate to exchange from USD into BRL today

Reference no: EM132825908

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