Lee Junho who is a currency trader in Japan observers the following market conditions: • Annual interest rate in Japan: 1.5% per annum • Annual interest rate in France: 7.0% per annum • Current spot exchange rate: ¥ 114.4733/€ • One-year forward exchange rate: ¥ 110.2423/€ • No transaction costs If Lee Junho can borrow ¥100,000,000, specific the transactions he may carry out in order to make some arbitrage profit and calculate the amount of the profit
Lee Junho who is a currency trader in Japan observers the following market conditions: • Annual interest rate in Japan: 1.5% per annum • Annual interest rate in France: 7.0% per annum • Current spot exchange rate: ¥ 114.4733/€ • One-year forward exchange rate: ¥ 110.2423/€ • No transaction costs If Lee Junho can borrow ¥100,000,000, specific the transactions he may carry out in order to make some arbitrage profit and calculate the amount of the profit
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 46QA
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Question
Lee Junho who is a currency trader in Japan observers the following market
conditions:
• Annual interest rate in Japan: 1.5% per annum
• Annual interest rate in France: 7.0% per annum
• Current spot exchange rate: ¥ 114.4733/€
• One-year forward exchange rate: ¥ 110.2423/€
• No transaction costs
If Lee Junho can borrow ¥100,000,000, specific the transactions he may carry
out in order to make some arbitrage profit and calculate the amount of the
profit
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