Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD
list down base rate and quote rate currency from question 1 to 5
1. Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term
CAD= Canadian Dollar
JYP= Japanese Yen
|
6-month Canadian interest rate |
1.6% per annum |
|
6-month Yen interest rate |
2.95% per annum |
|
Spot rate |
JYP 93.1395/CAD |
|
6-month forward rate |
JYP 93.8380/CAD |
2. Cecilia who is a currency trader in Japan observes the following market conditions:
• Annual interest rate in Japan: 1.5% per annum
• Annual interest rate in France: 7.0% per annum
• Current spot exchange rate: ¥ 114.4733/€
• One-year forward exchange rate: ¥ 110.2423/€
• No transaction costs
If Cecilia can borrow ¥100,000,000, specific the transactions he may carry out in order to make some arbitrage profit and calculate the amount of the profit.
3. Given CHF 3,500,000 as your capital, calculate the possible profit from covered interest arbitrage. Explain specific steps that you must take to make a covered
interest arbitrage.
CHF Fr = SwissFranc BND = Brunei Darul Salam
|
Spot rate |
CHF0.7359/BND |
|
270-day forward rate |
CHF 0.7359/BND |
|
9-month Brunei interest rate |
5% |
|
9-month swiss interest rate |
4% |
4. Inspired by his recent trip to the Great Pyramids, Bancorp trader Ruminder Dhillon wonders if he can make an Intermarket arbitrage profit using Libyan dinars and Saudi riyals. He has $1,000,000 to work with so he gathers the following quotes:
| Bancorp quotes U.S. dollar per Libyan dinar: | USD1.9324 = LYD1.00 |
| National Bank of Kuwait quotes Saudi riyal per Libyan dinar: | SAR 1.9405 = LYD1.00 |
| Barclay quotes U.S. dollar per Saudi riyal: | USD0.2667 = SAR1.00 |
5. Given this information. Is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage and compute the profit from this strategy if you had $1,000,000 to use.
| Value of Canadian dollar in US dollars | $ 0.90 |
| Value of New Zealand dollar in US dollars | $ 0.30 |
| Value of Canadian dollar in New Zealand dollars | NZ$ 3.02 |
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