Speculation and arbitraging in foreign exchange market, Corporate Finance

Question:

a) Using illustrative and numerical examples, differentiate between speculation and arbitraging in the context of foreign exchange market.

b) One year borrowing and deposit interest rates are 12% and 10% respectively in the US and 10% and 8.89% respectively in Switzerland. The spot exchange rate for the US dollar is $14 to the Swiss Franc. The 12-month forward rate is $14.52. The economies are pegged together, and have been so for a number of years.

i) Suggest a way you might profit from the pricing inconsistency that is presented here, assuming you have no initial investment funds.

ii) Will the situation persist forever? Explain your answer.

iii) What could be the spot rate which would bring a no-arbitrage situation?

Posted Date: 11/16/2013 2:17:48 AM | Location : United States







Related Discussions:- Speculation and arbitraging in foreign exchange market, Assignment Help, Ask Question on Speculation and arbitraging in foreign exchange market, Get Answer, Expert's Help, Speculation and arbitraging in foreign exchange market Discussions

Write discussion on Speculation and arbitraging in foreign exchange market
Your posts are moderated
Related Questions
Mergers & Acquisitions now is playing crucial role in modern corporate finance world. For any prospects, there is only one reason for a firm making an offer to M&A another firm,

Some aggregate figures concerning the available data are shown in Table 1. The sizes of both the assortment groups and the product groups vary greatly across the groups. In Season

GeKay Inc. currently (January 1) has a net income of $10,000,000 which is expected to grow indefinitely(perpetuity) at 10% per annum.   The firm is financed at a debt-to -value ra


Explain what caused "the long boom" in the U.S. and world economy from the early 1980s to its peak in 2006.  Make sure to mention, with a few key facts in each case, the role playe

If the cost of debt is the lowest choice among financing options, would increasing our percentage of debt reduce our cost of capital?#


In January 2009 you bought a German stock portfolio for 6,000,000 Euros and sold it in December 2009 for 7,000,000 Euros.  Assume that over the same period the dollar's exchange ra

A owns all of the X stock with a basis of $200. A's three sons own all of the Y stock equally. X and Y each have E&P of $100, respectively. A sells one half of the X stock to Y

Need assitance with a capital budgeting problem and NPV