Answer the two documents below. One is essay. All questions should be around 500 words and calculations is another documents, need to show working steps.
TUTORIAL - Arbitrage
1. You can borrow RM60,000. You found out the interest rate in Malaysia is 12% p.a. and in US is 14% p.a.. At present, the exchange rate of USD/MYR is 3.5652 and the three month forward is 3.5640. If the exchange rate in three months’ time is 3.5500, how much would your interest arbitrage profit or loss be? (Show all the possible workings).
2. Assume the bid rate of a Singapore dollar is $.40 while the ask rate is $.41 at Bank A. Assume the bid rate of a Singapore dollar is $.42 while the ask rate is $.425 at Bank B. 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?
3. 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 1-year deposits denominated in Swiss francs = 7%
Rate on 1-year deposits denominated in U.S. dollars = 9%
From the perspective of U.S. investors with $1,000,000, calculate the yield if he were to perform an interest arbitrage.
4. Natwest Bank quotes the following for the British pound and the New Zealand dollar:
Quoted Bid Price Quoted Ask Price
Value of a British pound (£) in $ $1.50 $1.52
Value of a New Zealand dollar (NZ$) in $ $.51 $.53
Value of a British pound in New Zealand dollars NZ$3.01 NZ$3.03
Assume you have $10,000 to conduct triangular arbitrage. What is your profit from implementing this strategy?
5. You can borrow USD50,000.00. You found out the interest rate in Malaysia is 11% p.a. and in US is 12% p.a.. At present, the exchange rate of MYR/USD is 0.2455 and the three month forward is 0.2458. If the exchange rate in three months’ time is 0.2457, how much would your interest arbitrage profit or loss be? (Show all the possible workings).
6. Assuming you have USD20,000. Calculate a possible arbitrage profit.
|
| Quoted Bid Price | Quoted Ask Price |
| Value of a British pound (£) in $ | 1.4900 | 1.5100 |
| Value of a New Zealand dollar (NZ$) in $ | 0.5000 | 0.5100 |
| Value of a British pound in New Zealand dollars | 3.0300 | 3.0500 |
7. If you have SGD100,000. Calculate the possible locational arbitrage.
| MYR/SGD | Bid | Ask |
| Bank A | 0.3020 | 0.3030 |
| Bank B | 0.3032 | 0.3034 |
8.
|
|
| SGD | RM |
| Deposit rate |
| 12.00% | 10.00% |
| Borrowing rate |
| 13.00% | 11.00% |
| Current spot per | SGD | 3.0000 | |
| Forward rate per | SGD | 2.9500 | |
| Amount to be borrowed in | SGD | 10000.0000 | |
| Deposit period(90 days) | 90.00 | ||
Calculate the covered interest arbitrage.
