You are a trader at Kangaroo Capital.The following rates for CAD (Canadian dollars) versus USD (U.S. dollars) in the market. 

 

The spot exchange rate (CAD per USD) is 1.5000.    
The annualised CAD interest-rate over nine months is       4%    
The annualised USD interest-rate over nine months is       12%    
The nine month market forward (CAD per USD) is 1.4192 - 1.4202.

 

(There is a bid-ask spread in the market forward but no bid-ask spread in the spot market).

 

Assume that nine months is exactly 0.75 years. 

 

Suppose that you are allowed to borrow either 15 mio CAD OR 10 mio USD?How much arbitrage profit can you make? Give your answer to the nearest CAD?

Answer rating: 100% (QA)

net outflow at the end of 9 months for CAD on borrowing at ... View the full answer