Question: Problem 2 2) Assume the following prices: (20ptsi Note: 51.42 = 1.00 is the same as 1.425 1. The interest rates are quoted on a

Problem 2 2) Assume the following prices: (20ptsi Note: 51.42 =

Problem 2 2) Assume the following prices: (20ptsi Note: 51.42 = 1.00 is the same as 1.425 1. The interest rates are quoted on a 360-day year. Determine whether covered interest arbitrage is feasible. 2. If a trader can borrow either 1,000,000 or $1,000,000, explain the specific steps this trader must take to make a covered interest arbitrage and calculate the profit. 3. To offset the existing arbitrage opportunity, in what directions do spot and forward rate move? (Increase or decrease) explain. Verdana 1101 BIVA A I * M MI iii 11! O WORDS Problem 2 2) Assume the following prices: (20ptsi Note: 51.42 = 1.00 is the same as 1.425 1. The interest rates are quoted on a 360-day year. Determine whether covered interest arbitrage is feasible. 2. If a trader can borrow either 1,000,000 or $1,000,000, explain the specific steps this trader must take to make a covered interest arbitrage and calculate the profit. 3. To offset the existing arbitrage opportunity, in what directions do spot and forward rate move? (Increase or decrease) explain. Verdana 1101 BIVA A I * M MI iii 11! O WORDS

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