You are a hedge fund looking for arbitrage opportunities between the spot FX market and...
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Accounting
You are a hedge fund looking for arbitrage opportunities between the spot FX market and 9 month FX forwards and money markets. You observe the following quotes from market makers in these markets for JPY and USD:
bid
ask
S(JPY/USD)
107.40
107.55
F9m(JPY/USD)
107.49
107.67
9m lending rate
9m borrowing rate
JPY
0.15%pa
0.25%pa
USD
0.40%pa
0.50%pa
You can borrow a present value of up to USD 1 million or lend a face value of up to USD 1 million by borrowing in JPY. At these prices, you can make a certain JPY profit in 9 months' time (to the nearest hundred JPY) of:
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