You are working in the arbitrage division of a large international bank.Thismorningyou noticed in your Bloomberg currency
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Question:
If you do see an opportunity, how should you act? You can either borrow $1,000,000 from a US bank or ¥100,000,000 from a Japanese bank to start the execution of your trades. If you do act and borrow, you need to return both the principal and the interest at the end of 3-months.
Please list all the transactions you need to execute and indicate how much profit you would make in JPY (or in USD) form and in percentage terms at the end of 3 months.
If you think the USD/JPY forward rate and the interest rates in the US and Japan are out of balance, Explain the mechanism how the markets would move back to equilibrium.
Related Book For
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman
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