The following spot exchange rates are currently being quoted by three different banks: JP Morgan offers...
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The following spot exchange rates are currently being quoted by three different banks: JP Morgan offers a spot rate of € 0.0071-0.0079/ Societe Generale offers a spot rate of € 0.879-0.888/$ Bank of America offers a spot rate of ¥ 100.9-101.5/$ Required: (i) Calculate the implied cross exchange rate between the euro (€) and the yen (¥). (ii) Demonstrate how an arbitrageur could make a profit from this situation and calculate the amount of the profit if 1m (millions) dollars ($) was arbitraged. You need to show all your workings. (iii) Now assume that you have ¥ 50m instead of $ 1m. Calculate the profit that can be made through triangular arbitrage. You need to show all your workings. The following spot exchange rates are currently being quoted by three different banks: JP Morgan offers a spot rate of € 0.0071-0.0079/ Societe Generale offers a spot rate of € 0.879-0.888/$ Bank of America offers a spot rate of ¥ 100.9-101.5/$ Required: (i) Calculate the implied cross exchange rate between the euro (€) and the yen (¥). (ii) Demonstrate how an arbitrageur could make a profit from this situation and calculate the amount of the profit if 1m (millions) dollars ($) was arbitraged. You need to show all your workings. (iii) Now assume that you have ¥ 50m instead of $ 1m. Calculate the profit that can be made through triangular arbitrage. You need to show all your workings.
Expert Answer:
Answer rating: 100% (QA)
i To calculate the implied cross exchange rate between the euro and the yen we can use the bid and ask rates provided by the banks The cross rate can ... View the full answer
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
Posted Date:
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