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Questions: Currency Lending Rate Borrowing Rate

Hiroshi Nurmata wants to invest $800,000 in a covered interest rate arbitrage between USD and JPY based on exchange rates and interest rates provided. The question asks to calculate the percentage profit that could be made on a 180-day covered interest arbitrage. Javier has SF10,000,000 and wants to do triangular arbitrage based on exchange rates between JPY/USD, USD/SF, and JPY/SF provided. The question asks to calculate the amount of profit in Swiss Francs that could be made. Ruggerman Bank expects the Mexican peso to depreciate against the USD and is given interbank lending and borrowing rates for USD and MXP.

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48 views2 pages

Questions: Currency Lending Rate Borrowing Rate

Hiroshi Nurmata wants to invest $800,000 in a covered interest rate arbitrage between USD and JPY based on exchange rates and interest rates provided. The question asks to calculate the percentage profit that could be made on a 180-day covered interest arbitrage. Javier has SF10,000,000 and wants to do triangular arbitrage based on exchange rates between JPY/USD, USD/SF, and JPY/SF provided. The question asks to calculate the amount of profit in Swiss Francs that could be made. Ruggerman Bank expects the Mexican peso to depreciate against the USD and is given interbank lending and borrowing rates for USD and MXP.

Uploaded by

hamba allah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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QUESTIONS

1. Hiroshi Nurmata, a foreign exchange arbitrage wants to invest USD800,000 in a covered


interest arbitrage between USD and JPY. He faces the following exchange rate and
interest rate quotes:

Spot exchange rate JPY124/USD


180-day forward exchange rate JPY123/USD
180-day USD interest rate 3 percent per year
180-day JPY interest rate 1 percent per year

Calculate the percentage profit Hiroshi Nurmata could make on 180-day covered interest
arbitrage.
(5.5 marks)

2. Javier have SF10,000,000 and planning to make profit via triangular arbitrage. The bank offers
the following quotes:

Fuji Bank ¥120.00/$


Rushmore Bank SF1.60000/$
Blanc Bank ¥80.00/SF

Calculate the amount of profit in Swiss Franc.


(5 marks)

3. Ruggerman bank expects that the Mexican peso will depreciate against US dollar from it
is spot rate of $0.43 to $0.42 in 60 days. The following interbank lending and borrowing
rates:

Currency Lending Rate Borrowing Rate


U.S Dollar 7.0% 7.2%
Mexican peso 22.0% 24.0%

Assume that Ruggerman has a borrowing capacity of MXP10 million in the interbank
market. Show the steps and calculate the profit could be generated from this strategy.
(10 marks)

4. Hugglers is a trader from United States and he is planning to make profit on the differences of
interest rate in Europe. He has US$300,000 to invest. Following are the information he collected
from bank:

Bid Ask
Spot rate for the euro (€) $1.08 $1.10
180-day forward rate of the euro (€) $1.08 $1.10

The 180-day interest in United States are 6 percent, while in Europe are 8 percent. Calculate the
profit earn by Hugglers by conduct covered interest arbitrage.
(4 marks)
5. George receive CHF 5,000,000 form his grandma. He is planning to make profit of the different
prices quote by the bank. The bank offers the following quotes:

Swiss bank CHF 1.75 / GBP


British bank EUR 1.15 / GBP
German bank CHF 1.55 / EUR

Calculate the yield (percentage return) on the triangular arbitrage.


(5 marks)

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