Discussion Problem Set 3_sols.docx

# 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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