Assignment Chapter 7 International Arbitrage Instruction: Use 4 decimal places Show clear working Problem 1: (10 points) Ben Holt, the CFO of Blades Corporation, has identified three arbitrage opportunities and wants you to prepare an analysis of the profitability from the three arbitrage opportunities. Use the information given to conduct the arbitrage. 1a. The first arbitrage opportunity relates to locational arbitrage. Holt has obtained spot rate quotations from two banks in Thailand, Minzu Bank and Sobat Bank, both located in Bangkok. The bid and ask prices of Thai baht for each bank are displayed in the table below: Minzu Bank Sobat Bank Bid S0.0224 $0.0228 Ask S0,0227 S0.0229 Determine whether the foreign exchange quotations are appropriate. If they are not appropriate, determine the profit you could generate by withdrawing $100.000 from Blades" checking account and engaging in arbitrage before the rates are adjusted. 1b. Besides the bid and ask quotes for the Thai baht provided in the previous question, Minzu Bank has provided the following quotations for the U.S. dollar and the Japanese yen: Quoted Bid Price Quoted Ask Price Value of a Japanese yen in U.S. dollars $0.0085 $0.0086 Value of a Thai baht in Japanese yen 2.69 2.70 Determine whether the cross exchange rate between the Thai baht and Japanese yen is appropriate. If it is not appropriate, determine the profit you could generate for Blades Inc, by withdrawing S100,000 from Blades' checking account and engaging in triangular arbitrage before the rates are adjusted. Ic. Ben Holt has obtained several forward contract quotations for the Thai baht to determine whether covered interest arbitrage may be possible. He was quoted a forward rate of 0.0225 per Thai baht for a 90-day forward contract. The current spot rate is $0.0227. Ninety-day interest rates available to Blades in the U.S. are 2 percent, whereas 90-day interest rates in Thailand are 3.75 percent (these rates are not annualized). Holt is aware that covered interest arbitrage, unlike locational and triangular arbitrage, requires an investment of funds. Thus, he would like to be able to estimate the dollar profit resulting from arbitrage over and above the dollar amount available on a 90-day U.S. deposit. Determine whether the forward rate is priced appropriately. If it is not priced appropriately, determine the profit you could generate for Blades by withdrawing S100.000 from Blades checking account and engaging in covered interest arbitrage. Measure the profit as the excess amount above the retum you could generate by investing in the U.S. money market. Problem 2: (10 points) Multiple Choices (MC) company has collected foreign exchange rate information and markets investment rates from variety of sources. MC is looking for arbitrage investment opportunities. MC, currently has US5 million funds available for arbitrage purpose. MC Bank Spot rate and Forward Rates (As if Today Investment rate 7% Spot AS 1.8161 GBP Australia British pound (GBP) pa 4% p.a. Spot AS 1.6116 EU US 5% pa CS 1.5829/EU US 0.8900 /AS Spot Spot 3-month Forward Spot Spot 3-month Forward Spot US 0.8855 /AS US 1.4343/EU US 1.6163 GBP US 1.6220 GBP US 0.9381 CS 2a. Identify the arbitrage opportunities available. What are they? 2b. Conduct the arbitrage and determine the profits in U.S. Dollars