Yujie is an experienced trader in FX markets for one of the major banks in Toronto. She is looking at an opportunity to make arbitrage profit and is reviewing several currency rates.

Following quotes and interest rates are available from local market sources

MXN/GBP Spot 24.9354

CAD/GBP Spot 1.6859

INR/EUR Spot 85.0262

CAD/EUR Spot 1.4826

MXN/GBP 1 year futures 29.2365

Risk Free Rate in Germany 1.6%

Risk Free Rate in Canada 4%

Risk Free Rate in UK 1.6%

Risk Free Rate in India 9%

1)What is the interest rate prevailing in Mexico? (0.5 marks)

2)What is the 1year futures rate for MXN/CAD? (0.5 marks)

3)Suppose INR/CAD 1 year futures is quoted as 60.2898 and MXN/CAD 1 year futures 17.7777, show arbitrage details using 1mn. (2 marks)

Answer rating: 100% (QA)

1 To find the interest rate prevailing in Mexico we can use the interest rate parity formula textForward Rate textSpot Rate frac1 textDomestic Interest Rate1 textForeign Interest Rate ight Given that ... View the full answer