James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate SFr1.2070 per $ Six-month forward exchange rate SFr1.1941 per $ Six-month Dollar interest rate 2.5% per year Six-month Swiss franc interest rate 2.0% per year Required: Is the interest rate parity holding? You may ignore transaction costs. What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $1,000,000. Compute the arbitrage profit.
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James Clark is a currency trader with Wachovia. He notices the following quotes:
| Spot exchange rate | SFr1.2070 per $ |
|---|---|
| Six-month forward exchange rate | SFr1.1941 per $ |
| Six-month Dollar interest rate | 2.5% per year |
| Six-month Swiss franc interest rate | 2.0% per year |
Required:
- Is the interest rate parity holding? You may ignore transaction costs.
- What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $1,000,000. Compute the arbitrage profit.
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- James Clark is a foreign exchange trader with Citibank. He notices the following quotes. (12’)Spot exchange rate SFr1.2051/$Six-month forward exchange rate SFr1.1922/$Six-month $ interest rate 2.5% per yearSix-month SFr interest rate 2.0% per yeara. Is the interest rate parity holding? You may ignore transaction costs.b. Is there an arbitrage opportunity? If yes, show what steps need to be taken to make arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.?James Clark is a foreign exchange trader with Citibank. He notices the following quotes: Spot exchange rate USD 1.2051/CHF One-year forward exchange rate USD 1.1922/CHF One-year $ interest rate 8% per year One-year CHF interest rate 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000.Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro: $1.2223/€Barclays Bank quotes U.S. dollars per pound sterling: $1.8410/£ Dresdner Bank quotes Euros per pound sterling: €1.5100/£ You are a market trader with $1,000,000. Will you be able to make an arbitrage profit using these quotes? If yes, why? What will be the profit? Show your calculations.
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