finance ,,
Do the following problems
- Calculate the following cross exchange rates:
- If the exchange rates are 200 yen per dollar and 50 US cents per Swiss Franc, what is the exchange rate of yen per franc?
- The dollar is trading at Y100/$ and at SFr1.60/$.What is the yen per franc rate?
- As a percentage of an arbitrary starting amount, about how large would transaction costs have to be to make arbitrage between the exchange rates SFr1.7223/$, $0.009711/Y and Y61.740/SFr unprofitable?
- Assume the following information:
Beal Bank Yardley Bank
Bid price of New Zealand dollar $.401 $.398
Ask price of New Zealand dollar $.404 $.400
Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of locational arbitrage?
- Assume that cross exchange rates are always proper such that triangular arbitrage is not feasible. While at the Miami airport today, you notice that a U.S. dollar can be exchanged for 125 Japanese yen, or 4 Argentine pesos at the foreign exchange booth. Last year, the Japanese yen was valued at $0.01, and the Argentine peso was valued at $.30. Based on this information, the Argentine peso has changed by what percent against the Japanese yen over the last year?
- You obtain the following quotes from different banks. One bank is willing to buy or sell Japanese yen at an exchange rate of 110 yen per dollar. A second bank is willing to buy or sell the Argentine peso at an exchange rate of $.37 per peso. A third bank is willing to exchange Japanese yen at an exchange rate of 1 Argentine peso = 40 yen.
- Show how you can make a profit from triangular arbitrage and what your profit would be if you had $1,000,000.
- As investors engage in triangular arbitrage, explain the effect on each of the exchange rates until triangular arbitrage would no longer be possible.
10 years ago
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