Discussion Problem Set 3_sols.docx - F494 Discussion...

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F494 Discussion Questions-- #3 International Arbitrage Spring 2018 Brief Solutions Locational Arbitrage: 1) Madura, Chapter 7 # 2; Blades Case Yes, locational arbitrage is profitable, the profit is $2500. Yardley’s ask price for NZ will rise; Beal Bank will lower its bid price until locational arbitrage will no longer be profitable. Q1 of Blades Case: Blades Case Q1: Profit = $440.53 2) Yes: Profit on $10 million = $2473.21 Triangular Arbitrage: 3) Questions in Chapter 7 of Madura #4 Yes, it is profitable: Profit = $6667 Expect $/CA to rise, NZ/CA to fall, $/NZ to fall 3) Since there is an arbitrage opportunity: profit = $13,155.46 #Yen/1$ would fall, #JPY/1TB would rise, #TB/$ would rise. 5) Yes, is profitable: profit is CA 1250.22 Forward Premiums/Discounts: 6) Suppose the following spot and forward rates are quoted: a) Calculate the 90-day forward premiums or discounts on an annual basis for: $ vs. euro = -0.0407 or –4.07% $ is at forward premium, euro at forward discount; SF vs. US $: = -0.0618 or –6.18% the SF is at a forward premium, the dollar at a forward discount b) Forward prem/disc (SF vs. Euro): S(SF/euro) = SF 1.5248/euro
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  • Fall '08
  • STAFF
  • Arbitrage, Forward contract, Forward price, annual basis, Cost of carry, locational arbitrage

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