Forex and Interest Rate Illustration 8
From the following data calculate the possibilities of a gain/loss in arbitrage.
Spots rate FFR 6.00Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = US $ 1
6 months forward rate FFR 6.0020Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = $ 1
Annualized interest rate on 6 months US $Â Â Â = 5%
Annualized interest rate 6 months Fr             = 8%.              (Mumbai University, May 2004)
(Ans.: Formula I – Negative. Formula II- Positive, 14,653)
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