International Financial Management Assignment Problems

International Financial Management Assignment Problems

Question # 00026747 Posted By: expert-mustang Updated on: 09/26/2014 12:52 AM Due on: 09/26/2014
Subject Finance Topic Finance Tutorials:
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1) Suppose two banks provide the following quotes for the Japanese Yen (JPY) per 1Euro exchange rate:

Bid Ask

CitiGroup JPY 138.6385/Euro JPY 138.6425/Euro

UBS JPY 138.7420/Euro JPY 138.7510/Euro

Suppose you have Euro1 million to apply to arbitrage. Can you make a profit through locational arbitrage? Show your work. If a profit exists, how will the quotes change to eliminate this profit opportunity (be specific about which quotes are changing and how)?


2) A bank is quoting the following Japanese Yen (JPY) and Australian dollar (AUD) bid and ask rates against the US dollar (recall Bid & Ask are relative terms):

‘Bid’ ‘Ask’

JPY JPY 107.18/$ JPY 107.28/$

AUD AUD 1.1078/$ AUD 1.1088/$

An Australian firm is interested in what a bank would quote for the bid and ask cross JPY/AUD rates. If Triangular Arbitrage has eliminated arbitrage opportunities, what are the JPY/AUD (#JPY per 1AUD) bid and ask rates shouldthe bank quote?


3) Suppose you receive the following spot quotes from the bank for the Australian dollar & the euro:

Bid Ask

AUD 1.1076/$ AUD 1.1086/$

$ 1.2935/euro $ 1.2942/euro

AUD 1.4380/euro AUD 1.4415/euro

Is triangular arbitrage profitable for anAustralian investorwith AUD 1million to apply toward arbitrage? Show your work to support your answer. If arbitrage is profitable,howwould you expect the quotes to adjust? Would the result change if the investor making the investment was an American investor with US$1million?


4) Suppose you receive the following quotes (BRL = Brazilian Real, EUR = Euro):

Bank’s Bid Bank’s Ask

Spot #BRL to 1 Euro BRL 3.0342/euro BRL 3.0382/euro

90-day forward BRL to 1 Euro BRL 3.1168/euro BRL 3.1210/euro

Euro Area Brazil

90-day deposit rates (annual basis) 0.25% 10.8%

90-day borrowing rates (annual basis) 0.35% 11.00%

Assume an investor must borrow funds in order to engage in arbitrage activities. Given these quotes, is covered interest arbitrage profitable? Show your work and explain briefly.

5)Suppose today’s December 2014 settlement futures price on one Mexican Peso futures contract (Peso 500,000 per contract) is $0.075130/peso, and suppose you believe the peso is poised to depreciate. What position would the speculator take? Suppose the daily changes in the settlement prices over the next 3 days are -0.00130, 0.000125, and -0.00012. What is the profit or loss over the three days assuming the speculator takes a position in a single contract?
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    Tutorial # 00026172 Posted By: expert-mustang Posted on: 09/26/2014 12:53 AM
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