James Clark is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate USD1.2051/SFr USD1.1922/SFr 8% per year 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1.000.000, Input your answer without any currency information.

James Clark is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate USD1.2051/SFr USD1.1922/SFr 8% per year 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1.000.000, Input your answer without any currency information.

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

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James Clark is a foreign exchange trader with Citibank. He notices the following quotes: Spot exchange rate USD 1.2051/CHF One-year forward exchange rate USD 1.1922/CHF One-year $ interest rate 8% per year One-year CHF interest rate 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000.
James Clark is a foreign exchange trader with Citibank. He notices the following quotes. (12’)Spot exchange rate SFr1.2051/$Six-month forward exchange rate SFr1.1922/$Six-month $ interest rate 2.5% per yearSix-month SFr interest rate 2.0% per yeara. Is the interest rate parity holding? You may ignore transaction costs.b. Is there an arbitrage opportunity? If yes, show what steps need to be taken to make arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.?
James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate SFr1.2066 per $ Six-month forward exchange rate SFr1.1937 per $ Six-month Dollar interest rate 2.5% per year Six-month Swiss franc interest rate 2.0% per year Required: Is the interest rate parity holding? You may ignore transaction costs. What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $1,000,000. Compute the arbitrage profit.
The following exchange rates are available to you as Finance Manager for Ganado. (You can buy or sell at the stated rates.) Assume you have an initial SF 12,000,000. Can you make a profit via triangular arbitrage? If so, show the steps and calculate the amount of profit in Swiss francs (Swissies). Mt. Fuji Bank ¥92.00=$1.00 Mt. Rushmore Bank SF 1.02=$1.00 Mt. Blanc Bank ¥90.00=SF1.00
James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate SFr1.2070 per s SFr1.1941 per $ Six-month forward exchange rate Six-month Dollar interest rate Six-month Swiss franc interest rate 2.5% per year 2.0% per year Required: a. Is the interest rate parity holding? You may ignore transaction costs. b. What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $1,000,000. Compute the arbitrage profit.
You are a currency trader specializing in the Japanese yen, and you are confident that the spot exchange rate will be *118 per dollar in six months based on your analysis. The current spot exchange rate is 123 per dollar, and the six-month forward rate is 113 per dollar. Assume that you would like to buy or sell *100,004,000. Use direct quotes in your calculations. Enter the numeric portion of your answer without the currency symbols. Required: a-1. How should you speculate in the forward market to make a profit? a-2. What is the expected dollar profit from speculation? b. What would be your speculative profit in dollar terms if the spot exchange rate turns out to be ¥117 per dollar in six months? Complete this question by entering your answers in the tabs below. Req A1 Answer is complete but not entirely correct. Req A2 Req B What would be your speculative profit in dollar terms if the spot exchange rate turns out to be X117 per dollar in six months? Note: Round intermediate…
The following exchange rates are available to you. (You can buy or sell at the stated rates.) Mt Fuji Bank ¥120.00/A$ Mt Rushmore Bank SF1.6000/A$ Mt Blanc Bank ¥80.00/SF Assume that you have SF10, 000,000. Can you make a profit via triangular arbitrage? If so, show the steps that you will follow and calculate the amount of profit in Swiss francs.
. Peder Mueller is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent) to invest for three months. Using the following values and assumptions, Spot exchange rate (CHF-USD1.00) 3-month forward rate (CHF-USD1.00) Expected spot rate in 3 months (CHF=USD1.00) U.S. dollar 3-month interest rate (%) Swiss franc 3-month interest rate (%) 1.2810 1.2740 1.2700 4.800 3.200 He decides not cover his forward dollar receipts-an uncovered interest arbitrage (UIA) transaction. How much profit can he make if his assumptions are true? $4,731 b. $1,538 c. $7,061 d. $12,765
Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro: $1.2223/€Barclays Bank quotes U.S. dollars per pound sterling: $1.8410/£ Dresdner Bank quotes Euros per pound sterling: €1.5100/£ You are a market trader with $1,000,000. Will you be able to make an arbitrage profit using these quotes? If yes, why? What will be the profit? Show your calculations.
Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.
Peter Sheffield has Euros (€) amounting to €500,000 and is provided with the following quotes: Bank A: Euro/US dollar = €0.8418/$ Bank A: British pound /US dollar = £0.7538/S Bank B: British pound/Euro = £0.8863/€ Determine whether an arbitrage opportunity exists. Show your calculation in the space below and briefly explain (in one or two sentences) why the arbitrage opportunity exists or not. For example, show your calculation as follows (The currencies used in the example are not applicable to your calculation. It just provide you with information how you should show your calculation): Yen/ZAR = 11.7654/1.3954 = 8.4316 (Round your answer to 4 decimals) Reason why arbitrage opportunity exists/ does not exist:
Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United Kingdom. Arbitrage funds available to invest: $1M( or the equivalent in pounds) Spot rate ($/Ł) : 1.9422 90-day forward exchange rate ($/Ł): 1.9150 Expected 90-day spot exchange rate ($/Ł): 1.8810 U.S. dollar 90-day interest rate: 2.000% U.K. pound 90-day interest rate: 5.900% A.Should Vicky make an covered investment in the UK? Show work and give answer. B. Shoudl Vicky make an uncovered investment in the UK? Show work and give answer.

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