Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Cecilia who is a currency trader in Japan observes the following market conditions:
• Annual interest rate in Japan: 1.5% per annum
• Annual interest rate in France: 7.0% per annum
• Current spot exchange rate: ¥ 114.4733/€
• One-year forward exchange rate: ¥ 110.2423/€
• No transaction costs
If Cecilia can borrow ¥100,000,000, specific the transactions he may carry out in order to make some arbitrage profit and calculate the amount of the profit.
Step 1
1) Different i for Base rate -Quote rate =
2) Different between Spot and Forward =
(1) + (2) =
invest in _ borrow in _
Step 2 explain using table
Transcribed Image Text:2 Second step
spot
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