Telerate screen: arbitrage opportunity for exchange and interest rate quotes
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On checking the Telerate screen, you see the following exchange rate and interest rate quotes:
Currency 90-Day Interest Spot 90- Day Forward
Rates (Annual) Rates Rates
Dollar 4.99%- 5.03%
Swiss Franc 3.14%- 3.19% $0.711- 22 $0.726- 32
a. Can you find an arbitrage opportunity?
b. What steps must you take to capitalize on it?
c. What is the profit per $1 million arbitraged?
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Solution Summary
The solution presents one sentence answers to the questions but then provides calculations in Excel to demonstrate the answers.
Solution Preview
See attached Excel file for calculations.
a) Yes there is an arbitrage opportunity.
b) ...
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