5. (11 points) What is the profit on $1 million invested in triangular arbitrage if direct quotes for UK pound and euro in New York are $1.5836-41 and $1.3422-25, while direct quote for pound in Berlin is €1.0146-50 8. (4 points) What is the annualized nominal interest rate in Saudi Arabia implied by interest rate parity if current direct spot and 45-day forward rates in New York for Riyal are $0.2667 and $0.2665, respectively, minal interest rate in US is 4.81%?
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Akash M.
Let's suppose you have $1 million to invest. You are considering investing in the UK first, then converting the British Pound back to US$ in the future. You know the following information: Annual interest rate on investment in the US: 2% Annual interest rate on investment in the UK: 4% Investment period: 1 year Current exchange rate: 1.48$/BP Forward exchange rate which you can apply when converting BP to US$: 1.47$/BP What would be the profit if you apply the covered-interest arbitrage? None of the above About $48,382 About $24,254 About $40,542
Assume that the following spot exchange rates exist today: £1 = $1.50; C$1 = $0.75 and £1 = C$1.7. Assume no transaction costs. a. Based on these exchange rates, can triangular arbitrage be used to earn a profit? Explain. b. Assuming you have $20,000. How much profit, if any, can you make?
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