Currency Derivatives: swap rate, profitable arbitrage
Not what you're looking for?
4. An investor wishes to buy Euros spot (at $0.9080) and sell Euros forward for 180 days (at $0.9146).
a. What is the swap rate on Euros?
b. What is the forward premium or discount on 180- day Euros?
7. Suppose the euro is quoted at 0.7064-80 in London and the pound sterling is quoted at 1.6244-59 in
Frankfurt.
a. Is there a profitable arbitrage situation? Describe it.
b. Compute the percentage bid-ask spreads on the pound and euro.
Purchase this Solution
Solution Summary
This posting answers questions on swap rates, forward premium/discount, profitable arbitrage & computing the percentage bid-ask spreads.
Solution Preview
4 a. What is the swap rate on euros?
= $0.9146 - $0.9080
= 0.0066
A premium of 66 points
b. What is the forward premium or discount on 180-day Euros?
The 180 day premium is (0.9146 - 0.9080)/0.9080 x 2 = 1.45%
7. ...
Purchase this Solution
Free BrainMass Quizzes
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.