Suppose that Cloudastries Bank is a U.S.-based financial intermediary that serves the foreign exchange market. Assume that this bank is willing to both purchase and sell currency for the same rate. In other words, assume there is no bid/ask spread. Suppose Cloudastries has made the following direct quotations: Currency Mexican Peso Euro Dollar Spot Rate $0.40 $1.60 Additionally, Cloudastries has quoted a cross exchange rate of 1 euro = 4.01 pes After exchanging dollars for euros, the next step in triangular arbitrage is to excl If you use all 6,250.00 to purchase pesos from Cloudastries, you would receive 40,106.42 64,160.00 100,250.00 25,062.50 ros for pesos. pesos.

Suppose that Cloudastries Bank is a U.S.-based financial intermediary that serves the foreign exchange market. Assume that this bank is willing to both purchase and sell currency for the same rate. In other words, assume there is no bid/ask spread. Suppose Cloudastries has made the following direct quotations: Currency Mexican Peso Euro Dollar Spot Rate $0.40 $1.60 Additionally, Cloudastries has quoted a cross exchange rate of 1 euro = 4.01 pes After exchanging dollars for euros, the next step in triangular arbitrage is to excl If you use all 6,250.00 to purchase pesos from Cloudastries, you would receive 40,106.42 64,160.00 100,250.00 25,062.50 ros for pesos. pesos.

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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Suppose that Cloudastries Bank is a U.S.-based financial intermediary that serves the foreign exchange market. Assume that this bank is willing to both purchase and sell currency for the same rate. In other words, assume there is no bid/ask spread. Suppose Cloudastries has made the following direct quotations: Currency Dollar Spot Rate $0.55 $1.65 Mexican Peso Euro Additionally, Cloudastries has quoted a cross exchange rate of 1 euro = 3.01 pesos. After exchanging euros for pesos, the last step in triangular arbitrage is to exchange those pesos for dollars. If you exchange your 36,484.84 for dollars from Cloudastries, you would receive This represents a profit of
Suppose the Japanese yen exchange rate is ¥116/$ and the British pond exchange rate is $1.27/£. a) What is the yen to pound cross-rate? b) Suppose that a bank gives you a quote of ¥156/£. Is there an arbitrage opportunity here? If so, explain how to take advantage of the mispricing.
Assume the bid rate of an Yen dollar is $ 1.8 while the ask rate is $ 3.5 at Arab Bank.Assume the bid rate of an Yen dollar is $3.4 while the ask rate is $5.7 at Palestine Bank. Given this information, what would be your gain if you use $8876.7 and execute locational arbitrage? =8876.713.5^ * 3.4b =8876.7/5.7^ * 3.5c =8876.7/3.4^ * 1.8d = 8876.7 /3.5^ * 5.7
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc/dollar = SFr1.5971/$ Australian dollar/U.S. dollar = A$1.8215/$ Australian dollar/Swiss franc = A$1.1440/SFr Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Arbitrage profit
For the statements below indicate if it is true or false. If the statement is false, rewrite so that it is a true statement. Use the space available to answer your question. 1. Foreign exchange markets are markets in which people of one country exchange goods with people from another country. TRUE/False: 2. When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the dollar is undervalued, meaning that it will buy less in international trade than it will buy at home. TRUE/False : 3. For any given interest rate, the shorter the time period before the receipt a dollar, the lower is its present value. TRUE/False :
We observe Fo> Soera-r), where Fo is the direct forward exchange rate, "a is the domestic risk-free rate, ry is the foreign riskfree rate, T is the maturity of the forward contract, So is the direct spot exchange rate. Choose an action from below to arbitrage: O At time 0, we convert the foreign currency we borrowed into domestic currency. O At time 0, borrow 1000 foreign currency atr, for T. O Long forward: buy the foreign currency at T at F, using domestic currency received from the domestic bank. O At time 0, borrow 1000 domestic currency at r for T.
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc/dollar = SFr1.6077/$ Australian dollar/U.S. dollar = A$1.8345/$ Australian dollar/Swiss franc = A$1.1521/SFr Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose?
S Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc/dollar = SFr1.6011/$ Australian dollar/U.S. dollar = A$1.8260/$ Australian dollar/Swiss franc = A$1.1470/SFr Required: Ignoring transaction costs, - a. Does Doug Bernard have an arbitrage opportunity based on these quotes? Does Doug Bernard have an arbitrage opportunity based on these quotes? Yes b. How much would he profit if he has $1,000,000 available for this purpose? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Arbitrage profit
Shava specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc/dollar = SFr1.5987/$ Australian dollar/U.S. dollar = A$1.8233/$ Australian dollar/Swiss franc = A$1.1452/SFr Ignoring transaction costs, does Shava have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose?
Suppose the Swiss Franc is currently traded at SFR 1.40/$. The British Pound is traded at GBP 1.39/$. Ignoring transaction costs:a. Determine the SFR/GBP exchange rate consistent with these direct quotations.b. Suppose the SFR/GBP cross rate in the market was at SFR 1.05/GBP. Is there any arbitrage opportunity?c. How would you take advantage of any arbitrage situation?
The next two questions are based on the following information Consider the following prices in the international money markets: Spot rate: USD1.275/GBP One-year Forward rate: USD1.364/GBP Interest Rate (UK): 2.39% Interest Rate (US): 11.66% Assuming no transaction costs, which of the following statements is true? An arbitrage can be obtained by borrowing in the currency that is expressing the other currency. An arbitrage can be obtained by investing in the currency that is expressing the other currency. An arbitrage can be obtained by borrowing in the currency that is being expressed by the other currency. O d. An arbitrage cannot be obtained by investing in the currency that is being expressed by the other currency. O e. None of the option in this question are correct. O a. O b. O c. What should the forward rate be for the International Fisher Effect to hold? GBP1.4875/USD GBP1.3904/USD USD1.3904/GBP d. USD1.4875/GBP O e. None of the options in this question. a. O b. Oc
Suppose the Japanese yen exchange rate is ¥105 = $1, and the British pound exchange rate is £1 = $1.34. A. What is the cross-rate in terms of yen per pound? B. Suppose the cross - rate is ¥136 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.

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