Tony Fernandes, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make profit based on the following rates. Explain specific steps that Tony Fernandes must take to make a covered interest arbitrage. 6-month Canadian interest rate: 1.60% per annum 6-month Yen interest rate: 2.95% per annum Spot rate: JYP 93.1395/CAD. 6-month Forward Rate JYP 93.8380/CAD. CAD = Canadian Dollar JYP = Japanese Yen

Tony Fernandes, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make profit based on the following rates. Explain specific steps that Tony Fernandes must take to make a covered interest arbitrage. 6-month Canadian interest rate: 1.60% per annum 6-month Yen interest rate: 2.95% per annum Spot rate: JYP 93.1395/CAD. 6-month Forward Rate JYP 93.8380/CAD. CAD = Canadian Dollar JYP = Japanese Yen

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 46QA

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Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD 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
Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD
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