Question: Q.1 What do you mean by covered interest arbitrage in the foreign exchange market? When does the opportunity for covered interest arbitrage exist? Given the

Q.1 What do you mean by covered interest arbitrage in the foreign exchange market? When does the opportunity for covered interest arbitrage exist? Given the following data: Spot-rate: USD/INR 45.00 3-month forward rate: USD/INR 45.90 Annualized interest rate on 3-month Rupee: 6.5% Annualized interest rate on 3-month Dollar: 3.5% Find out if any arbitrage opportunity is possible? If yes, explain and also calculate the arbitrage profits if any assuming an amount in multiple of thousand)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Dale C. Bone was a member of Roscoe, LLC, an LLC organized under the laws of North Carolina. Roscoe, LLC, purchased two acres of land near the town of Apex, North Carolina. Apex approved Roscoe, LLCs...

In the following diagram the horizontal axis (S) is the FX spot price on the day of the option expiration, and the vertical axis represents the profit or loss from that option. It represents the...

Please indicate which currency pair provides the greatest opportunity for a covered interest arbitrage? Which currency pair provides the least opportunity? Assume you can borrow or lend $1 million at...

I need help with the Final Project presentation. (The last part) I attached my previous presentations to it as well Milestones 1, 2, 3 and the interview research. Please help, and please cite all...

Question 1 Riskless profit, also known as Covered Interest Arbitrage (CIA), can be made through international arbitrage. However, arbitrage activities will eventually cause prices to realign until an...

The mechanics of exchange rate arithmetic, though fundamentally simple, can be confusing for those not using it on a regular basis. The questions below are designed to provide practice in the more...

Q1 Q2 Q3 Q4 Q5 Q6 Globalisation has led to increased international trade worldwide. Letters of Credit (LC) play an important role in facilitating international trade. Required: (a) Describe the role...

help me please with these questions for home work that is due in 2 hours . In which case will locational arbitrage most likely be feasible? (Points : 3.5) One bank's ask price for a currency is...

a-What would be the $SDR bid if the SDR appreciates 15% against the dollar? What would be the SDR/$ offer rate if the SDR appreciates 15%? SDR is Special Drawing Rights, a basket currency precursor...

1. 22. What factors affect the degree of firm's translation exposure? 1. 23. Consider a period in which the U.S dollar weakens against the euro. How will this affect sspthe reported earnings of (1...

Please provide the answers to the questions in the document submitted. Please provide step-by-step how to work out the math problems. Thank you,. FINANCE 6644: Global Financial Strategy Krishnan...

Danny's YoYos sells high quality yoyos. The inventory, purchases, and sales for a recent month in chronological order are as follows: Date Activities Units Acquired and Sold Oct 1 Oct 4 Oct 7 Oct 10...

Walt Hubble is contemplating selling rental property that originally cost $199,617. He believes that it has appreciated in value at an annual rate of 7% over its four-year holding period. He will...

A trainer should analyze organizational/trainee needs at which point in the process? Question 4 options: a. only during the needs analysis. b. at every point in the needs-centered training model. c....

Explain the INC, CMP, JNZ commands. Make short examples that you can use these commands together or separately.

At the alveolar airpulmonary blood interface, gas exchange occurs by simple diffusion. Without certain adaptations, however, diffusion occurs too slowly to produce a viable level of gas exchange....

these two gases, changes in (PO2 OR PCO2) are the most important in regulating the magnitude of ventilation. A fall in the partial pressure of this gas triggers the body to (increase OR decrease) the...

Calculate the amount of interest to be paid on a $50,000 loan over the next 28 months if money earns 8.6% p.a simple interest. Select one: O a. $120,400 b. $10,033.34 c. $836.12

1. Write a class encapsulating a web tore, which inherits from Store. A web store has the following additional attributes: an Internet address and the programming language in which the website was...

three of the four types of processes are a . input, transformstion and output B . process focus, repetitive focus and product focus c .

discuss different sources of numerical data;

design and evaluate an effective survey instrument;

administer a survey to an appropriate sample of respondents;