Youre a FX trader working in Mexico. You have decided not to bear transaction foreign...
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Finance
Youre a FX trader working in Mexico. You have decided not to bear transaction foreign exchange risk. The required information is as follows:
Bid
Ask
Spot rate (MXN/)
29.202
29.230
180-day Forward rate (MXN/)
28.956
28.982
Peso interest rate % p.a.
1.00
1.06
Pound interest rate % p.a.
4.04
4.10
Using a box diagram that represents covered interest arbitrage (a rectangular arbitrage that we have drawn with arrows in the tutorials), demonstrate how you can make arbitrage profit with a step-by-step approach. You MUST choose the correct bid or ask price for each transaction. Please start with 10,000 units of currency and use 4 decimal points. (6 marks)
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