Suppose that you are a trader of JP Morgan allowed to do arbitrage. Annualized six month...
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Suppose that you are a trader of JP Morgan allowed to do arbitrage. Annualized six month LIBOR for the Yen and the U.S. dollar are: Bid (deposit) - Ask (Borrow) ¥ at 0.5%-0.625% Bid (deposit) - Ask (Borrow) $ at 5.375%-5.5% From a phone call to a trader at Daiwa Bank, you learn that Daiwa will let customers buy and sell ¥ spot at 100.00-50 ¥/1$. A trader at Barclays is simultaneously quoting bid and ask 6-month swap rates of - 300 points (i.e., he will buy and sell ¥ 6-month forward at 97.00-50 ¥/1$). Can you make money out of those quotes? Explain thoroughly Suppose that you are a trader of JP Morgan allowed to do arbitrage. Annualized six month LIBOR for the Yen and the U.S. dollar are: Bid (deposit) - Ask (Borrow) ¥ at 0.5%-0.625% Bid (deposit) - Ask (Borrow) $ at 5.375%-5.5% From a phone call to a trader at Daiwa Bank, you learn that Daiwa will let customers buy and sell ¥ spot at 100.00-50 ¥/1$. A trader at Barclays is simultaneously quoting bid and ask 6-month swap rates of - 300 points (i.e., he will buy and sell ¥ 6-month forward at 97.00-50 ¥/1$). Can you make money out of those quotes? Explain thoroughly
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