1. Consider the following information: In New York €1 =$1.09251 In Frankfurt £1 = €1.1234 In London $1 = £0.85 (a) Determine if there is a currency arbitrage opportunity in this 3-currency situation. (b) If there is such an opportunity, explain how you may be able to capture this profit. YOU NEED TO ILLUSTRATE YOUR PROFITABLE ROAD MAP WITH A NUMERICAL EXAMPLE

1. Consider the following information: In New York €1 =$1.09251 In Frankfurt £1 = €1.1234 In London $1 = £0.85 (a) Determine if there is a currency arbitrage opportunity in this 3-currency situation. (b) If there is such an opportunity, explain how you may be able to capture this profit. YOU NEED TO ILLUSTRATE YOUR PROFITABLE ROAD MAP WITH A NUMERICAL EXAMPLE

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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2.) Pound 0.64/$ in London, 1.04/Euro in New York, and Pound 0.64/Euro in Frankfurt. Depending on this information, how do you think you can make a profit by trading currency in the given monetary centers? calculate your profit by explaining transactions
Suppose £1=€1.28 in Paris, €1 =TL 9.30 in İstanbul, and £1 = TL 13 in London. ignoring transaction costs, are there any arbitrage profit for each currency initially traded? If yes prove at least two of them.
Considering the following quotes from three banks: London Bank: €1.0837/£ Hong Kong Bank: U$1.1944/£ Tokyo Bank: €0.9582/U$ Ignoring transaction costs, is there an arbitrage opportunity based on these quotes? Justify your answer through calculations. If yes, what steps would you take to make an arbitrage profit and how much profit in US dollars would you make if you are authorized to use 10 million US dollars for this purpose?
2. Imports and ExportsNow we allow for international trade. Use the following information from problem 1: C = 400 + (8/9)*DI I = 300G = 800T = (1/2)*Y. Suppose that exports are constant at X = 300.Let imports be a fraction of real income: M = (1/9) * Y. a. Give intuition for why imports M are positively related to national income Y in the equation above.b. Suppose that national income increases by $1. How much will spending on imports increase (the marginal propensity to import) in this case? c. Compute the equilibrium level of national income under international trade. d. Suppose that government spending increases by $120. i) Compute the new equilibrium national income. ii) Based on your numerical answer to (i), calculate the change in national income from a one dollar increase in government spending. iii) Derive the new fiscal multiplier from an increase in government spending using an algebraic equation. Compare to Problem 2.d.(ii). Compare to Problem 1.c.(v).e. Trade…
Peter Sheffield has Euros (€) amounting to €500,000 and is provided with the following quotes: Bank A: Euro/US dollar = €0.8418/$ Bank A: British pound /US dollar = £0.7538/S Bank B: British pound/Euro = £0.8863/€ Determine whether an arbitrage opportunity exists. Show your calculation in the space below and briefly explain (in one or two sentences) why the arbitrage opportunity exists or not. For example, show your calculation as follows (The currencies used in the example are not applicable to your calculation. It just provide you with information how you should show your calculation): Yen/ZAR = 11.7654/1.3954 = 8.4316 (Round your answer to 4 decimals) Reason why arbitrage opportunity exists/ does not exist:
A UK-based firm has identified three variables that impacts its cash flow, hence risk associated with its cashflow. The identified variables are interest rates (INT), the euro/sterling exchange rate (EXCH), and the price of gas (GAS). The relationship between the variables can be expressed as follows: Change in cash flow = ₔ+ ß1 INT + ß2 EXCH + ß3 GAS + ҙ (a) Explain the relationship as expressed in the multiple regression analysis. (b) Identify the dependent variable and independent variables and type of risks associated to each variable and how to manage these risks. (c) How do you describe the relationship between the independent variables and the dependent variable. (d) Identify and briefly explain the three commonly used approaches to quantifying financial risks.
Suppose exchange rate of Japanese yen in US $ is $.010, exchange rate of euro in US $ is $1.34, and exchange rate of euro in Japanese yen is 139 yen and you have $100, 000 to invest. By looking the exchange rates, do you see triangular arbitrage opportunity? What is your profit or loss? Show the work to support your answer.
You are the trade advisor to a multinational company with an investment of US1,500,000. The following are the rates quoted on the FOREX market. US $ to Euro 1.22/€ US$ to pounds 1.84/£ Euros to pounds 1.54/£ Calculate the cross rate and determine if a profit opportunity exists. What is the value of that profit if you decide to trade with the US$1.5 million?
Given this information. Is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage and compute the profit from this strategy if you had $1,000,000 to use. Value of Canadian dollar in US dollars $ 0.90 Value of New Zealand dollar in US dollars $ 0.30 Value of Canadian dollar in New Zealand dollars NZ$ 3.02
Please help with a discussion on question #2. The base country is Nevis and the countries trading to is Australia, Columbia and Germany. Explain why would it be more profitable to trade in USD rather than XCD and how can the MNC benifit from the trading countries currencies. Use an echange rate table or chart to help strenghten your point You are asked to simulate your own multinational corporation (MNC).You are required to justify the form of their own MNC, based in the Caribbean, which tradeswith three countries outside of the North America region. Students will then examine issues relatedto foreign exchange management within their multinational corporation.This group assignment should address the following:1. The type of MNC, is the exportation of a product soldthrough a distributor2. The main foreign currencies that will be used in the business.3. The foreign exchange exposure of the company and how the company plans to managethis exposure.4. Any current financial issues that…
Please no written by hand solution Suppose you observe the following rates in a market. $0.80 = 1.0 euros $1.50 = 1.00 pounds 0.55 pound = 1.00 euro If you have $1 million, you will get arbitrage profits by buying a currency with $1 million, then buying another currency with the currency you bought, and lastly buying dollars with the currency you bought. The arbitrage profit with the operation will be ?
Assume the bid rate of an Yen dollar is $ 1.8 while the ask rate is $ 3.5 at Arab Bank.Assume the bid rate of an Yen dollar is $3.4 while the ask rate is $5.7 at Palestine Bank. Given this information, what would be your gain if you use $8876.7 and execute locational arbitrage? =8876.713.5^ * 3.4b =8876.7/5.7^ * 3.5c =8876.7/3.4^ * 1.8d = 8876.7 /3.5^ * 5.7

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