K(Foreign exchange arbitrage) You own $12,000. The dollar rate in Tokyo is ¥216.9658/$. The yen rate in New York isgiven in the following table:Selling Quotes for Foreign Currencies in New YorkCountry-CurrencyContractSpot30-day90-day(Click on the icon in order to copy its contents into a spreadsheet.)Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain in dollars?Japan-yen$/Foreign CurrencyThe statement above is0.0046730.0048490.004799+"Assuming no transaction costs, the rates in Tokyo and New York are out of line. Therefore, arbitrage profitsare possible."...(Select from the drop-down menu.)

Arbitrage is risk free profit that can be obtained by selling one currency in one market and buying…

ng Quotes for Foreign Currencies in New York ntry-Currency Contract Spot 30-day 90-day on the icon in order to copy its contents into a spreadsheet.) bitrage profits possible? Set up an arbitrage scheme with your capital. What is th an-yen $/Foreign Currency 0.004673 0.004849 0.004799

ng Quotes for Foreign Currencies in New York ntry-Currency Contract Spot 30-day 90-day on the icon in order to copy its contents into a spreadsheet.) bitrage profits possible? Set up an arbitrage scheme with your capital. What is th an-yen $/Foreign Currency 0.004673 0.004849 0.004799

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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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

K
(Foreign exchange arbitrage) You own $12,000. The dollar rate in Tokyo is ¥216.9658/$. The yen rate in New York is
given in the following table:
Selling Quotes for Foreign Currencies in New York
Country-Currency
Contract
Spot
30-day
90-day
(Click on the icon in order to copy its contents into a spreadsheet.)
Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain in dollars?
Japan-yen
$/Foreign Currency
The statement above is
0.004673
0.004849
0.004799
+
"Assuming no transaction costs, the rates in Tokyo and New York are out of line. Therefore, arbitrage profits
are possible."
...
(Select from the drop-down menu.)

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