Forex and Interest Rate Illustration 3


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Currency Units:

E.g. Currency $: 0.6650/DM (Spot)

Currency $: 0.6700/ DM (3-months)

Interest Rates:

DM: 7.00% per annum

Currency $: 9.00% per annum

Calculate arbitrage gain possible from the above data.          (Mumbai University, April, 2002)

(Ans.: Formula 1 – Positive Borrow Home. Invest foreign Gain 2,650 CAD an investment of       1 million CAD. Formula 2 – Negative Reject)


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