Foreign exchange market, Business Economics

Assignment Help:

Consider the following information in the international money markets:

            Spot rate                       :           $0.95:€

            Forward rate (one year)  :           $0.97:€

            Interest rate (DM)          :           7% per annum

            Interest rate ($)              :           9% per annum

a. Assume no transaction costs or taxes exist, do covered interest arbitrage profits exist in this situation? Describe flows.

b. Suppose now that transaction costs in the foreign exchange market equal to 0.25% per transaction. Do unexploited covered arbitrage profits still exist?

c. Suppose no transaction costs exist. Let the capital gain tax on currency profits equal to 25% and the ordinary income tax on interest income equal 50%. In this case, do covered arbitrage profits exist? How large are they? Describe the transactions required to exploit these profits.


Related Discussions:- Foreign exchange market

What are the import substitution policies, What are the import substitution...

What are the import substitution policies? Import substitution policies are as follows: Need trade restrictions for example, tariffs and quotas to defend infant industr

Draw a supply or demand diagram, Draw a Supply or Demand Diagram A) Supp...

Draw a Supply or Demand Diagram A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due  largely to increases in the price of energy and food

Political partiy., two political party called hawks show apoint ppf that th...

two political party called hawks show apoint ppf that the hawks might choose and a point the doves might choose

A transition economy, A  transition economy is Moving from a planned t...

A  transition economy is Moving from a planned to a mixed or free market economy.

Shares, How to record shares for a company for a project

How to record shares for a company for a project

Elasticity of demand, Explain the elasticity of price expectations?

Explain the elasticity of price expectations?

Production, What is the definition of land productivity?

What is the definition of land productivity?

What are state approaches to developing, What are state approaches to devel...

What are state approaches to developing? The government supposes responsibility for economic planning to attain the best possible utilize of scarce resources. An economic plan

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