Trans-Atlantic Arbitrage

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CHAPTER 6 QUESTIONS : 8,13,14,15 QUESTION 8 Akira Numata –UIA Japan Assumptions | Value $ | Yen equivalent | Arbitrage funds | 5,000,000 | 593,000,000 | Spot Rate (¥/$) | 118.60 | | 180-days forward Rate | 117.80 | | Expected spot Rate | 118.00 | | 180-days U.S dollar interest rate | 4.80% | | 180-days Japanese Yen Interest Rate | 3.400% | | Calculations Calculating forward Rate (i= interest rate) F180 sf/$ = S sf/$*1+ (isF*180/360)/ (i$*180/360) =118.60*1+ (0.034*180/360)/ 1+ (0.048*180/360) =118.60*1.017/1.024 =117.789 = 117.80 Difference in interest Rate i¥ - i$ =3.400% -4.800% = -1.400% Expected gain (loss) on the Spot…show more content…
By doing so, he would be able to gain a Covered Investment Arbitrage. Swiss Franc interest rate (90 days) iSFr. =3.200% per annum (0.80% per 90 days) =SFr.1, 281,000.00 *1.0080 SFr.1, 291,248.00 *Spot (Sfr. /$) /forward -90 days (SFr. /$)
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