You are a currency arbitrageur, use the following data to make a 180-day CIA recommendation...
70.2K
Verified Solution
Link Copied!
Question
Finance
You are a currency arbitrageur, use the following data to make a 180-day CIA recommendation (assume that the borrowing and investing rates are identical, that the bid-ask spread in the foreign exchange markets is zero and that there are no transactions costs). 10 marks
Data:
Home: Canada;
Available funds: CAD 5,000,000 or equivalent in EUR
Spot: 1.48 CAD/EUR;
Annual T-Bill rate: Canada 4%; Euro: 1%
Forward 180-day: 1.52 CAD/EUR
Show how you can determine if there is a profitable arbitrage opportunity.
Calculate the forward premium or discount and use the arbitrage rules of thumb to decide your CIA strategy
Represent your CIA strategy in a diagram showing the currency exchanges, borrowing, and investing flows, and show all calculations. Clearly state the arbitrage profit (round your final answer to the dollar, no decimals).
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
