The South African Rand is trading at USD/ZAR 14.34. The 1-year USD OIS rate is trading at 2.59%, and the comparable one year ZAR rate is trading at 8.40%. You call up a broker and get a quote for a 1-year forward FX rate of 14.75.

Is there an arbitrage opportunity with the broker-dealer that you called? If so, structure a US$ 100 mil (or equivalent) trade that would earn an arbitrage profit. What would the profit be (enter this in millions, so $100,500,000 would be 100.500)?

If there is no arbitrage profit opportunity, enter a "0" in the answer box.

Answer rating: 100% (QA)

Yesthere is an arbitrage opportunity in this scenarioHeres why and how to exploit it 1 Identify the ... View the full answer