1. Assume that you can buy 250 Canadian dollars with 100 British pounds and you have 100 British pounds. The following exchange rates are available.Country U.S. $ Equivalent Currency per U.S. $Canada ? 1.3500U.K 1.8305 ? Complete the table above and compute how much profit, if at all, you can earn with triangle arbitrage? b) Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1925. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. At what Canadian interest rate, there will be no possibility forprofitable arbitrage?

1. Assume that you can buy 250 Canadian dollars with 100 British pounds and you have 100 British pounds. The following exchange rates are available.Country U.S. $ Equivalent Currency per U.S. $Canada ? 1.3500U.K 1.8305 ? Complete the table above and compute how much profit, if at all, you can earn with triangle arbitrage? b) Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1925. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. At what Canadian interest rate, there will be no possibility forprofitable arbitrage?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 51QA

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