Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days? If no, explain why.
Statoil, the national company in Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar ($), rather than the Norwegian krone (Nok), as its functional currency. Ari Karlsen is a currency trading strategist for Statoil.
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates:
Spot exchange rate: Yen 106/$
U.S. dollar interest rate: per annum 10%
Japanese Yen interest rate: per annum 6%
and told Ari that the company’s financial analyst expected the Japanese Yen to
Would Ari make a profit by borrowing 1 million US dollar and investing in the
If yes, how much profit would Ari realize in 90 days?
If no, explain why.
Step by step
Solved in 2 steps with 6 images
