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(Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",

(Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",

International Financial Management
International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 11QA
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(Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",
Transcribed Image Text:(Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",
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