James Clark is a foreign exchange trader with Citibank. He notices the following quotes.

$1.49 Excluding Tax

Complete Solution:

Solution Available in PDF File.

-
+

Specs

SKU: AT-1681 Categories: , Tags: , , ,

Description

QUESTION:

James Clark is a foreign exchange trader with Citibank. He notices the following quotes.

Spot exchange rate

SFr1.2051/$

Six-month forward exchange rate

SFr1.1922/$

Six-month $ interest rate

2.5% per year

Six-month SFr interest rate

2.0% per year

a. 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 an arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.


 

Reviews

There are no reviews yet.

Be the first to review “James Clark is a foreign exchange trader with Citibank. He notices the following quotes.”

Your email address will not be published. Required fields are marked *