A US dollar costs 1.30 Canadian dollar (CAD), but the same dollar can be purchased for 25.0Mexican peso (MXN). If the MXN/CAD exchange rate is quoted as 18.0, there is anopportunity for triangular arbitrage. Starting from a dollar, the arbitrager will first buy (CADMXN) with the dollar to obtainblanks and explain your answer."% of riskless arbitrage profit for each round. Fill in

The arbitrage is buying and selling same securities in different market.

Answered: US dollar costs 1.30 Canadian dollar…

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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DVR Inc. can borrow dollars for five years at a coupon rate of 2.84 percent. Alternatively, it can borrow yen for five years at a rate of .94 percent. The five-year yen swap rates are 0.73–0.70 percent and the dollar swap rates are 2.50–2.53 percent. The currency ¥/$ exchange rate is 87.620. Determine the dollar AIC and the dollar cash flow that DVR Inc. would have to pay under a currency swap where it borrows ¥1,750,000,000 and swaps the debt service into dollars. Borrow: Swap:Provide accurate solution with explanation of all the requirements. Use excel calculations with excel formulas. Provide solution ASAP.
Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: What is the optimal portfolio of ETFUS and ETFCDA? Also submit an Excel file to show your work.
Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?
In New York, you can exchange $1 for €0.8575 or £0.7. Suppose that, in Berlin, £1 costs €1.1515. How much profit can you earn on $10,998 using triangle arbitrage?
Country Currency Lodging Food Miscellaneous Exchange rate Total € (₁₂₁) € Germany: Euros USD EUR 658.27 718.44 195.00 761.42 831.02 225.56 1818.00 1.1567 USD/EUR INR India: Rupees USD 25,234.90 16,107.38 5,330.00 413.10 ¥ 263.68 ¥ 87.25 ¥ 764.03 0.01637 USD/INR China: Yuan USD CNY 4,983.89 2,507.29 1,730.00 749.08 376.85 260.02 1385.94 0.1503 USD/CNY
The graph below shows contingency net profits for a buyer of a Swiss franc (CHF) straddle, in which the exercise price is $1.09 per CHF, the call and put premiums are $0.03 and $0.04 per CHF, respectively. Explain why the buyer's net profit per unit is V-shaped, and why his break-even points are at the future exchange rates of $1.02 and$1.16. Net profit per unit S1.09 $1.02 $1.16 S1.09 Future spot rate -$0.07
Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10). Singapore dollar in US dollars (USD/SGD) 0.73 US dollars in British pounds (GBP/USD) 0.83 Singapore dollar in British pounds (GBP/SGD) 0.71
5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) | 1. 2. 3.
Assuming the following quotes: Citibank quotes U.S. dollars per pound at $1.5400/£ National Westminster quotes euro per pound at €1.6000/£ Deutsche bank quotes dollars per euro at $0.9700/€ Is there an arbitrage opportunity based on these quotations? If so, show how a market trader with one million $ (1,000.000 $) can make an inter-market arbitrage profit, and calculate that profit.
Assume the spot rate between the uk and the US is .€ .6789= $1 while the one year Foward rate is €.6782=$1. The risk free rate in the UK is 3.1 percent. The risk free rate in the U.S is 2.9 percent. How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest abitrage?
How to calculate IRR and IRP in this question? The answer is 7% in the end, but I do not know how to get it. Consider the situation of firm A and firm B. The current exchange rate is $1.50/€. Firm A is a U.S. MNC and wants to borrow €40 million for 2 years. Firm B is a French MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown; both firms have AAA credit ratings. $ $ 7% $ 8% € € 6% € 5% A B If firm B could use the forward exchange markets to redenominate a 2-year €40m 5 percent euro loan into a 2-year USD-denominated loan, what would be the interest rate?
You use today's spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead. Today's spot rate is $0.4524. Assume that you obtain the end-of-month spot exchange rates of the Brazilian real during the end of each of the last 6 months. End of Month 1 2 3 4 5 6 % $ Value of Brazilian real Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the next month based on a 95 percent confidence level. Do not round intermediate calculations. Round your answer to two decimal places. $0.4231 0.4179 0.4192 0.4542 0.4649 0.4524 Forecast the exchange rate that would exist under these conditions. Do not round intermediate calculations. Round your answer to four decimal places.

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