Ch.7 Blades Case - Shaun [email protected] FIN 4613 Blades...

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Shaun Lanshe @00717301 11/01/09 FIN 4613: Blades, Inc. Case Ch.7: International Arbitrage and Interest Rate Parity (Pg. 211) 1. Locational Arbitrage: Minzu Bank Sobat Bank Bid (per baht) 0.0224 0.0228 Ask (per baht) 0.0227 0.0229 Purchase baht with $ at Minzu 4,405,286 .34 =100,000/0.0227 Sell baht for $ at Sobat 100,44 0.53 =4,405,286.43*0.02 28 Profit 44 0.53 =100,440.52- 100,000 2. Triangular Arbitrage: Quoted Bid Quoted Ask Value of yen in $ 0.0085 0.0086 Value of baht in yen 2.69 2.7 Baht/yen ask cross-exchange rate (Minzu) 2.671 =(0.0227/0.0086) Baht/yen ask cross-exchange rate (Sobat) 2.663 =(0.0229/0.0086) Baht/yen bid cross-exchange rate (Minzu) 2.635 =(0.0224/0.0085) Baht/yen bid cross-exchange rate (Sobat) 2.682 =(0.0228/0.0085) Triangular Arbitrage: Purchase baht at Minzu 4,405,286 .34 =100,000/0.0227 Exchange baht for yen 11,850,220 .26 =4,405,286.34*2.6 9 Exchange yen for $ 100,72 6.87 =11,850,220.26*0. 0085 Profit 72 6.87 =100,726.87- 100,000 3. Covered Interest Arbitrage: Baht Rates 90-Day Interest Rates 90-day Forward Spot US Thailand 0.0225 0.0227 2% 3.75%
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90-Day US Deposit: Invest in US for 90-days 102000 =100,000*(1.02) Profit 2,000 =102,000-100,000 Covered Interest Arbitrage (Thailand): Purchase baht 4,405,286.34 =100,000/0.0227 Invest in Thailand for 90-days
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