Forex and Interest Rate Illustration 8


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Forex and Interest Rate Illustration 8

From the following data calculate the possibilities of a gain/loss in arbitrage.

Spots rate FFR 6.00                                        = US $ 1

6 months forward rate FFR 6.0020                = $ 1

Annualized interest rate on 6 months US $    = 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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