Explain foreign exchange market, Corporate Finance

Assignment Help:

Question:

a) Using illustrative and numerical examples, differentiate between arbitraging and speculation in the context of foreign exchange market.

b) One year borrowing and deposit interest rates are 12% and 10% respectively in the Republic of Tran and 10% and 8.89% respectively in the Kingdom of Sylvania. The spot exchange rate for the Tran dollars is $14 to the Sylvan Francs. The 12-month forward rate is $14.52. The economies are pegged together, and have been so for a number of years.

i) Suggest a way you may profit from the pricing inconsistency that is presented here, consider you have no initial investment funds.

ii) Will the situation persist forever? Describe your answer.

iii) What could be the spot rate which would bring a no-arbitrage situation?


Related Discussions:- Explain foreign exchange market

Impact on uncertainty in the global foreign exchange markets, Question 1: ...

Question 1: i) Each of the following statements has been put forward as an explanation of determinants of exchange rate: a) ‘the increase in the value of a currency is becau

Accumulative swing index - asi, It is an indicator used by traders to judge...

It is an indicator used by traders to judge a security's long-term trend by comparing bars which comprise its closing,   opening, high and low prices during a specific period of ti

New value of the equity, GeKay is now considering issuing $3 million in deb...

GeKay is now considering issuing $3 million in debt, and paying $150,000 yearly in interest at 5%, that it would keep rolling over "forever" (in perpetuity). The proceeds would

Advantages and disadvantages of overdraft, A factoring company has offered ...

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoi

Mergers & Acquisitins, Relationship between the size of companies and the r...

Relationship between the size of companies and the role of M & A

Portfolio, #Minimum 100 words accepted#

#Minimum 100 words accepted#

Importance of the dividend policy on the market value, The Directors of Roh...

The Directors of Rohan Plc are discussing the importance of the dividend policy on the market value of their firm. The Chairman considers that the dividend is important and does

? The effect of incorrect recognition of revenue on, A? The effect of incor...

A? The effect of incorrect recognition of revenue on financial reportssk question #Minimum 100 words accepted#

Mini Case Chapter 17, what is a multinational corporation? Why do firms exp...

what is a multinational corporation? Why do firms expand into other countries?

Replacement decision, #question.Baobab rolling mills owns a lathe machine w...

#question.Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd