Answered: Jack Ma, a foreign exchange trader in…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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Question

Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage.

CAD= Canadian Dollar

JYP= Japanese Yen

6-month Canadian interest rate	1.6% per annum
6-month Yen interest rate	2.95% per annum
Spot rate	JYP 93.1395/CAD
6-month forward rate	JYP 93.8380/CAD

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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