Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume that annual interest rates are 6 percent in the United States and 5 percent in Turkey. An FI can borrow (by issuing CDs) or lend
(by purchasing CDs) at these rates. The spot rate is $0.6624/Turkish lira (TL).
a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $5 million? What is the spread earned? (Do not round
intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))
b. At what forward rate is this arbitrage eliminated? (Do not round intermediate calculations. Round your answer to 5 decimal
places. (e.g., 32.16161))
a. Spread earned
b. Forward rate
0.7595 %
TL
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