ASSIGNMENT Inter-dealer arbitrage 1. Dealer A quotes the Indian rupee at: 67.2785 67.2850. Dealer B quotes the same currency at: 67.2985 67.3040. Is there an arbitrage opportunity in the Indian rupee? Research Paper

ASSIGNMENT Inter-dealer arbitrage 1. Dealer A quotes the Indian rupee at: 67.2785 67.2850. Dealer B quotes the same currency at: 67.2985 67.3040. Is there an arbitrage opportunity in the Indian rupee? If so, what exchanges should you make to take advantage of it? (Indicate which dealer you should buy from and which you should sell to and, in each case, which currency you are buying or selling.) How profitable is a round trip trade? (State the profitability either in percent or basis points.) 2 Dealer A quotes the Australian dollar at: 0.7228 0.7230. Dealer B quotes the same currency at: 0.7232 0.7235. Is there an arbitrage opportunity in the Australian dollar? If so, what exchanges should you make to take advantage of it? (Indicate which dealer you should buy from and which you should sell to and, in each case, which currency you are buying or selling.) How profitable is a round trip trade? (State the profitability either in percent or basis points.) Triangular arbitrage (Inter-market) assume that the highest bid and lowest ask are equal (i.e., that the bid-ask spread is zero) 3. The NY quote for Malaysian ringgit is 4.0853, and for the Singapore dollar, 1.3823. What must the quote for the ringgit in Singapore (SGDMYR) be for there to be no arbitrage opportunity? 4. Using the spot exchange rates indicated in the previous question, if the exchange rate for the ringgit (SGDMYR) in Singapore is 2.9428, what trades should you make to take advantage of the arbitrage opportunity? That is, indicate where you should buy and where you should sell and, in each case, which currency you are buying or selling. How profitable is a round trip trade? (State the profitability either in percent or basis points.) 5. The NY quote for Brazilian reals is 3.5654 and the quote for Paraguayan guarani is 5600.30. If guarani trade in Sao Paulo (BRLPYG) for 1571.75, describe the trades you should make to take advantage of the arbitrage opportunity? That is, indicate where you should buy and where you should sell and, in each case, which currency you are buying or selling. How profitable is a round trip trade? (State the profitability either in percent or basis points.) 6. The NY quote for euros is 1.1215 and the quote for UAE dirham is 3.6735. If dirham trade in Paris (EURAED) for 4.1216, what trades should you make to take advantage of the arbitrage opportunity? That is, indicate where you should buy and where you should sell and, in each case, which currency you are buying or selling. How profitable is a round trip trade? (State the profitability either in percent or basis points.) 7. The NY currency market, the quote for British pounds is 1.4589 and the quote for euros dollars is 1.1215. If euros trade in London (EURGBP) for 0.7689, what trades should you make to take advantage of the arbitrage opportunity? That is, indicate where you should buy and where you should sell and, in each case, which currency you are buying or selling. How profitable is a round trip trade? (State the profitability either in percent or basis points.) Covered interest arbitrage (Inter-temporal) assume that the highest bid and lowest ask are equal (i.e., that the bid-ask spread is zero) and all interest rates are stated as annual rates 8. If the interest rate on six-month inter-bank debt denominated in US dollars is 0.55%, the interest rate on six-month inter-bank debt denominated in Russian rubles is 11.05%, and the spot exchange rate for Russian rubles is 66.046, what must the six-month forward rate on the ruble be if there is no arbitrage opportunity (i.e., interest rate parity holds)? 9. If the six-month forward rate for Russian rubles (USDRUB) is 69.550 and the spot market exchange rate and interest rates are as indicated in the prior question, what trades should you make to take advantage of the arbitrage opportunity? That is, indicate which currency you should borrow, which currency you should invest, whether you should buy or sell in the spot market and whether you should enter a long or short forward contract. In each case, specify which currency you are borrowing, investing, buying or selling and the amount of the currency borrowed, loaned, bought or sold. How profitable is a round trip trade? (State the profitability either in dollars (or rubles) per dollar (or per ruble) borrowed, in percent or in basis points.) 10. If the one-year interest rate on US government debt is 1.75%, the one-year interest rate on Ghanian cedi is 23.0%, and the spot exchange rate for Ghanian cedi (USDGHC) is 0.8911, and the six-month forward rate for the cedi is 1.0776, what trades should you make to take advantage of the arbitrage opportunity? That is, indicate which currency you should borrow, which currency you should invest, whether you should buy or sell in the spot market and whether you should enter a long or short forward contract. In each case, specify which currency you are borrowing, investing, buying or selling and the amount of the currency borrowed, loaned, bought or sold. How profitable is a round trip trade? (State the profitability either in dollars per dollar borrowed, in percent or in basis points.)

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