Question 1 Suppose a forex trader makes the following statement, â€œliquid currencies would be more volatile...

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Question 1 Suppose a forex trader makes the following statement,â€œliquid currencies would be more volatile than the illiquid ones.â€Explain why would you agree or disagree with the traderâ€™sstatement.
Question 2 A forex trader has $1,000,000 (or its Swiss francequivalent) to use in a forex speculation. The spot exchange rateis USD1.0524/CHF and the relevant 3-month interest rates(un-annualized) in the US and Switzerland are 3.8% and 5.3%,respectively. Suppose the trader can make a precise forecast andthe future spot rate in 90 days will be USD1.0627/CHF, explain howthe trader can perform arbitrage. How much arbitrage profit can thetrader obtain? Explain your working

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Question 1 You would agree with traders statement because there will be more transactions in liquid currencies which would affect demand and supply of liquid currencies and in turn make them more volatile due to this See Answer

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