Exam 7: International Arbitrage and Interest Rate Parity

Assume that interest rate parity holds.The Mexican interest rate is 50%,and the U.S.interest rate is 8%.Subsequently,the U.S.interest rate decreases to 7%.According to interest rate parity,the peso's forward ___________ will __________.

Refer to the previous question.If you conduct covered interest arbitrage,what is your percentage return after 180 days Is covered interest arbitrage feasible in this situation

Based on interest rate parity,the larger the degree by which the U.S.interest rate exceeds the foreign interest rate,the:

Assume the following exchange rates:  $1 = NZ$3,NZ$1 = MXP2,and $1 = MXP5.  Given this information,as you and others perform triangular arbitrage,the exchange rate of the New Zealand dollar (NZ)with respect to the U.S.dollar should _______,and the exchange rate of the Mexican peso (MXP)with respect to the U.S.dollar should _______.

Assume the following information: You have $1,000,000 to invest Current spot rate of pound = $1.60 90day forward rate of pound = $1.57 3month deposit rate in U.S.= 3% 3month deposit rate in U.K.= 4% If you use covered interest arbitrage for a 90day investment,what will be the amount of U.S.dollars you will have after 90 days

Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR).Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit.What will be the profit for an investor who has $500,000 available to conduct locational arbitrage

Assume the U.S.interest rate is 2% higher than the Swiss rate,and the forward rate of the Swiss franc has a 4% premium.  Given this information:

National Bank quotes the following for the British pound and the New Zealand dollar: Assume you have $10,000 to conduct triangular arbitrage.What is your profit from implementing this strategy

Assume the following information: You have $900,000 to invest Current spot rate of Australian dollar (A$) = $.62 180-day forward rate of the Australian dollar = $.64 180-day interest rate in the U.S.= 3.5% 180-day interest rate in Australia = 3.0% If you conduct covered interest arbitrage,what is the dollar profit you will have realized after 180 days

Assume the following information: You have $1,000,000 to invest Current spot rate of pound = $1.30 90day forward rate of pound = $1.28 3month deposit rate in U.S.= 3% 3month deposit rate in Great Britain = 4% If you use covered interest arbitrage for a 90day investment,what will be the amount of U.S.dollars you will have after 90 days

To capitalize on high foreign interest rates using covered interest arbitrage,a U.S.investor would convert dollars to the foreign currency,invest in the foreign country,and simultaneously sell the foreign currency forward.

Realignment in the exchange rates of banks will eliminate locational arbitrage.More specifically,market forces will increase the ask rate of the bank from which the currency was bought to conduct locational arbitrage and will decrease the bid rate of the bank to which the currency was sold to conduct locational arbitrage.

Assume the following information: You have $300,000 to invest The spot bid rate for the euro (€)is $1.08 The spot ask quote for the euro is $1.10 The 180-day forward rate (bid)of the euro is $1.08 The 180-day forward rate (ask)of the euro is $1.10 The 180-day interest rate in the U.S.is 6% The 180-day interest rate in Europe is 8% If you conduct covered interest arbitrage,what amount will you have after 180 days

Assume the bid rate of a Swiss franc is $.57 while the ask rate is $.579 at Bank X.  Assume the bid rate of the Swiss franc is $.560 while the ask rate is $.566 at Bank Y.  Given this information,what would be your gain if you use $1,000,000 and execute locational arbitrage  That is,how much will you end up with over and above the $1,000,000 you started with

Assume that the euro's interest rates are higher than U.S.interest rates,and that interest rate parity exists.  Which of the following is true

Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q.  Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V.  Given this information,what would be your gain if you use $1,000,000 and execute locational arbitrage  That is,how much will you end up with over and above the $1,000,000 you started with 

Assume the following information: Spot rate today of Swiss franc = $.60 1-year forward rate as of today for Swiss franc = $.63 Expected spot rate 1 year from now = $.64 Rate on 1year deposits denominated in Swiss francs = 7% Rate on 1year deposits denominated in U.S.dollars = 9% From the perspective of U.S.investors with $1,000,000,covered interest arbitrage would yield a rate of return of ______%.

Due to _______,market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount)on the forward exchange rate between the two currencies.

Assume that Swiss investors are benefiting from covered interest arbitrage due to a high U.S.interest rate.  Which of the following forces results from the act of this covered interest arbitrage

Assume that the U.S.interest rate is 10%,while the British interest rate is 15%.  If interest rate parity exists,then: