Blades Plc Parity Relations in International Finance

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International Finance FIE433
Case Study 2 – Parity Relations in International Finance

Instructions
Students should allocate themselves into Consultancy Teams of around four people (final confirmation of the number in each team to be given after student enrolment). Choose a unique business name for your team. All teams should be prepared to present their results/conclusions to the rest of the class. A printout of the presentation slides should be uploaded on Its Learning and made available to me at the start by ALL teams. I will then choose randomly the teams to give their presentations of no longer than 20 minutes on the assigned tasks during the tutorials. Emphasis should be put on the presentation of the key points and the overall
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Besides the bid and ask quotes for the Thai baht provided in the previous question, Minzu Bank has provided the following quotations for the pound and the Japanese yen: Quoted Bid Price Quoted Ask Price
Value of a Japanese yen in British pounds £0.0057 £0.0058
Value of a Thai baht in Japanese yen ¥2.69 ¥2.70
Determine whether the cross exchange rate between the Thai baht and Japanese yen is appropriate. If it is not appropriate, determine the profit you could generate for Blades by withdrawing £100,000 from Blades’ current account and engaging in triangular arbitrage before the rates are adjusted.
Exchange quotation are not appropriate. There is a possibility for arbitrage, because it is possible to buy Thai bath for 0,0151 £ in Minzu ban and sell it by 2,69*0,0057=0,0153 what gives 0,0002£ profit per unit. Potential investor convert the currency £ into :Thai bath in Minzu Bank getting 1000 000/0,0151= 6 622 516,6 Thai bath. Then he/she can convert the money into Yen 6 622 516,6*2,69= 17 814 569,5¥ and at the end convert it into British pound again 17 814 569,5* 0,0057= 101 543,05 £
The profit from arbitrage – 1543,05 £

3. Ben Holt has obtained several forward contract quotations for the Thai baht to determine whether covered interest arbitrage may be possible. He was quoted a forward rate of £0.015 per Thai baht for a 90-day forward contract. The current spot rate is £0.0151. Ninety-day interest rates available to Blades in the United

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