What is the arbitrage profit in one year

Assignment Help Financial Management
Reference no: EM131025833

Suppose that the annual interest rate is 1.5% in the US and 3% in Germany, the spot exchange rate is $1.57/€ and the forward exchange rate with one-year maturity is $1.58/€. Assume that an arbitrator can borrow up to $1,000,000 with €625,000. If an astute arbitrator finds an arbitrage, what is the arbitrage profit in one year?

Reference no: EM131025833

Questions Cloud

What is the level of net exports equal to for this economy : You are told that the equilibrium level of output for this economy is $310 billion. What is the level of net exports equal to for this economy
What is the risk premium on this stock : Jerilu Markets has a beta of .97. The risk-free rate of return is 1.75 percent and the market rate of return is 7.95 percent. What is the risk premium on this stock?
The investment to be available-for-sale securities : Brankov Company purchased common stock in Ramona Company for $400,000. In the current year, Ramona Company reported net income of $50,000 and paid a dividend of $32,000. At the end of the year, the market value of the investment in Ramona Company was..
Write the fraction in simplest form : Write the equation of the line with x-intercept (-6, 0) and undefined slope.
What is the arbitrage profit in one year : Suppose that the annual interest rate is 1.5% in the US and 3% in Germany, the spot exchange rate is $1.57/€ and the forward exchange rate with one-year maturity is $1.58 /€. Assume that an arbitrator can borrow up to $1,000,000 with €625,000. If an ..
Prepare the appropriate entries for signal on december : Prepare the appropriate entries for Signal on January 1, 2013, to record the sale-leaseback. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
Determine the relative permeability of the core material : A 500-turn coil is wound on an iron core. When a 120-V-rms 60-Hz voltage is applied to the coil, the current is 1 A rms. Neglect the resistance of the coil. Determine the reluctance of the core. Given that the cross sectional area of the core is ..
Find the hedge ratio for a call option-current exchange rate : Find the hedge ratio for a call option on €10,000 with a strike of €17,000. The current exchange rate is €1.70/€1.00 and in the next period the exchange rate can increase to €2.40/€ or decrease to €.9375/€. The current interest rate are i€=3% and i€=..
How much the dollar appreciated against the currency : In the second half of 2015 a currency devalued by 78% against the US dollar. By how much the dollar appreciated against the currency?

Reviews

Write a Review

Financial Management Questions & Answers

  Small business maximize tax-deferred savings

Discuss all of the following statements and state why you agree or disagree with each of them individually. A defined benefit plan can help an older controlling employee in a small business maximize tax-deferred savings. The Internal Revenue Code set..

  Investors attempt to neither buy nor sell shares of asset

You have come across an asset that pays no dividends but has an expected price of $100 an year from now. The correlation of this asset with the market portfolio is believed to be 0.5. The standard deviation of the return is believed to be 30%. Accord..

  Currently manufactures a fuel valve

Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below: Cost per Unit Variable costs Direct material $940 Direct labor 600 Variable overhead 300 Fixed costs Depreciation..

  Relation between present values and interest rates

What do your answers to these questions tell you about the relation between present values and interest rates and between present values and the number of compounding periods per year? Calculate the future value in five years of $5,000 received today..

  Planning to save for retirement

You are planning to save for retirement over the next 35 years. To do this, you will invest $840 a month in a stock account and $440 a month in a bond account. The return of the stock account is expected to be 10.4 percent, and the bond account will ..

  Risk-free rate of return and expected return on the market

The beta of M Simon Inc., stock is 1.3, whereas the risk-free rate of return is 0.08. If the expected return on the market is 0.14, then what is the expected return on M Simon Inc?

  How much will your savings grow to in eight years

Once upon a time, your mother told you to "pay yourself first" - and you always listened to your mother (except for the time you and two of your friends went to Atlantic City in the middle of the night ... well never mind THAT!). Twice each year (6 m..

  What is the portfolio weight of each stock

Stock J has a beta of 1.3 and an expected return of 13.66 percent, while Stock K has a beta of 0.85 and an expected return of 10.6 percent. You want a portfolio with the same risk as the market. What is the portfolio weight of each stock?

  What cash flows can an investor expect

Given a MPT with a starting pool balance of $1,000,000, whose underlying collateral is a group of 10 year FRMs with annual payments, interest rate on the underlying mortgages=10%, servicing fees=0.5%, and prepayment projected to be 10% annually, what..

  Depreciation of the purchase price

1. The Los Angeles Lakers are sold for 650 Million. At a tax rate of 25% what is the new owner's yearly tax savings if he uses straight line depreciation of the purchase price over the full 15 years allowed by the IRS?

  Harvey norman

Harvey Norman is a public limited company, you have to Ensure you incorporate the end - June 2012 financial statements, and where applicable, any other recent data.

  Choice of special financing or price discount

Performance Auto is offering a choice of special financing or price discount on their new sports car. The sticker price is $35,000 and you can drive it away today for a cash payment of a cash payment of $28,500. You can borrow the $28,500 from 4th/8 ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd