Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. please indicate which currency pair provides the g

Please indicate which currency pair provides the greatest opportunity for a covered interest arbitrage? Which...

80.2K

Verified Solution

Question

Finance

  1. Please indicate which currency pair provides the greatest opportunity for a covered interest arbitrage? Which currency pair provides the least opportunity?
  2. Assume you can borrow or lend $1 million at the given interest rate in all countries, and enter both spot and forward exchange market. Can you come up with a plan and make money using the currency pair whose LHS and RHS differ the most?
Verification of Covered Interest Arbitrage Examples
Market data as of April 6/7, 2015: 1 2 3
Country USA Japan UK Euro Zone
Exchange ratio JPY per USD USD per GBP USD per EUR
Spot exchange rate, R 119.5000 1.4889 1.0936
3-month Forward exchange rate, F 119.3400 1.4879 1.0949
3-month interest rate (annualized) 0.27375% 0.10071% 0.57025% 0.00857%
In Percentages
LHS 0.04326% -0.07413% 0.06630%
RHS -0.13389% -0.06716% 0.11887%
Difference (Absolute value) 0.177150% 0.006970% 0.052570%

image

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students