The spot exchange rate is $0.19 per Brazilian real in American terms. Assume interest rates are continuously compounded. A US dollar invested in Treasury bonds grows to $1.019 after 90 days. A real invested in risk-free Brazilian government Treasury securities grows to 1.010 reals at the end of the same time period. A broker offers to trade a ninety-day forward contract to buy or sell 1 million reals at the exchange rate of $0.19 per real. The arbitrage profit in US dollar that you can make today by trading one forward and other securities is equal to [round to a dollar amount, i.e. 7523 for an arbitrage profit of 7523.42]
The spot exchange rate is $0.19 per Brazilian real in American terms. Assume interest rates are continuously compounded. A US dollar invested in Treasury bonds grows to $1.019 after 90 days. A real invested in risk-free Brazilian government Treasury securities grows to 1.010 reals at the end of the same time period. A broker offers to trade a ninety-day forward contract to buy or sell 1 million reals at the exchange rate of $0.19 per real. The arbitrage profit in US dollar that you can make today by trading one forward and other securities is equal to [round to a dollar amount, i.e. 7523 for an arbitrage profit of 7523.42]
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 1ST
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