Question: Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month forward rate (Kr/$) = 6.1720; US dollar 3-month interest rate = 3.100%

Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month

Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month forward rate (Kr/$) = 6.1720; US dollar 3-month interest rate = 3.100% per annum; Danish kroner 3-month interest rate = 5.100% per annum. You can invest $6,000,500, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the above quotes, how much is the covered interest arbitrage profit? A) Kr58,690.96 B) $58,690.96 C) Kr1,448.84 D) $1,448.84

Step by Step Solution

★★★★★

3.37 Rating (156 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Answert STEP1 A strategy in which arbitrager reduces rate risk by using the diff... View full answer

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Document Format (2 attachments)

635e0d38ec88d_181034.pdf

180 KBs PDF File

635e0d38ec88d_181034.docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

A man wants to determine whether or not to invest $1000 in a friend's speculative venture. He will do so if he thinks he can get his money back in one year. He believes the probabilities of the...

A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in...

A company is deciding whether or not to go ahead with a project. If the project is successful, the company will make $500,000 profit. If the project fails, the company's net loss will be $250,000....

The current dollar/Swiss franc spot exchange rate is 0.5685. If you invest one dollar for ninety days in the US domestic riskless asset, you earn $1.0101, and if you invest one franc for ninety days...

Dorchester, Ltd. is an old-line confectioner specializing in high-quality chocolates. Through its facilities in the United Kingdom, Dorchester manufactures candies that it sells throughout Western...

IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 250 million payable in three months. Currently, the spot exchange rate is 105/$ and the three-month forward rate...

Zylon Co. is a U.S. firm that provides technology software for the government of Singapore. It will be paid S$7 million at the end of each of the next 5 years. The entire amount of the payment...

A Europe an call on euro matures after T = 6 months. The call pays on the maturity 100[S(T) 1.30] dollars if it ends in-the-money, and zero is otherwise, where 100 is the contract multiplier and...

Forecasting the Pan-Pacific Pyramid: Australia, Japan & The United States What are the current spot exchange rate for the following cross rates? a. Japaness Yen/Us dollar exchange rate b. Japanese...

1. Using the spot rates and 3-month interest rates, calculate the 90-day forward rates for: a. Japanese yen/U.S. dollar exchange rate b. Japanese yen/Australian dollar exchange rate c. Australian...

Meals served are $15,000, coffee $500, milk $300, soft drinks $700, beer $1,200, wine $800, mixed drinks $400. What is the amount of food sales

A rocket is launched from the ground and travels in a straight path. The angle of inclination of the rocket's path is 1.35 radians. (That is, the rocket's path and the ground form an angle measuring...

Suppose we have a uniform beam that is 60 centimetres long, and is simply supported at both ends. If the beam has a load of f(x) = 11 N/m applied to it, and has a flexural rigidity of 10,000 Nm,...

Crystal wants life insurance that will diversify her financial portfolio and build wealth. She is searching for a policy that uses an investment method that has the potential to grow at a maximum...

Mention and explain the job description of Distribution and Exhibition do fast and need correct answer with good explanation

3. Assignment Task Question No 1 a) Which is better, an investment that earns 10% compounded quarterly, one that earns 9.95% compounded monthly, or one that earns 9.9% compounded continuously? b) The...

Jenina would like to purchase a new car in three years. If she saves $1,800 per year in an account that pays 8% annual interest for the next 3 years, how much will she have saved for a down payment?...

Trade credit from suppliers is a very costly source of funds when discounts are lost. Explain why many firms rely on this source of funds to finance their temporary working capital.

What are the four major types of innovation?

What are the ten myths associated with entrepreneurship? Debunk each.

To analyze a business, what types of questions or concerns should the entrepreneur address in the following areas: history of the business, market and competition, sales and distribution, management,...

Arab men tend to sit closer to each other than American men, with more direct, confrontational types of body orientations (Watson & Graves, 1966). They also use greater eye contact and speak in...

2. Describe why cultures may regulate the use of nonverbal behaviors.

Decoding refers to the process by which a person receives signals from an encoder and translates those signals into meaningful messages. The process of communication can be described as follows: