Differentiate between speculation and arbitraging, Risk Management

Assignment Help:

Question:

a) Using illustrative and numerical example, 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 dollars  is $14 to the Swiss Francs. 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) The situation persist forever? Explain your answer.

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


Related Discussions:- Differentiate between speculation and arbitraging

Analyse the risks as well as suggested responses, Question: You work in...

Question: You work in one of the major commercial banks of the island and your institution is contemplating venturing into Internet banking in the near future. As the risk m

Identify the entities for managing risks and controls, QUESTION Mybank ...

QUESTION Mybank Commercial Bank is a global conglomerate with operations in more than 10 countries and with more than 25,000 employees across the globe. The bank's technology t

Risk management strategy, The risk register and risk management strategy sh...

The risk register and risk management strategy should justify and report on the rationale of the register, priority and its management . Guidelines Risk  is assessed

Explain basic organisational structures, Question : (a) Every company h...

Question : (a) Every company has its own idea about how to organise itself and its work. Different companies doing the same work may have different organisation structures and

Risk free assets, Risk free assets is one for which there is no uncertainty...

Risk free assets is one for which there is no uncertainty in its expected rate of return and hence the standard deviation of such return is zero. Generally the expected rate of ris

Hi, ashjadsgdjhs

ashjadsgdjhs

Unsystematic risk, a. What is unsystematic risk? How is it different from s...

a. What is unsystematic risk? How is it different from systematic risk? Describe the sources of unsystematic risk. What will the required rate of return be when the level of system

Differentiate between interest and currency swaps, a) Differentiate betwee...

a) Differentiate between interest and currency swaps. b) Suppose a Swiss firm, ACER Com Ltd, wants to invest in the U.S. The Swiss firm needs US dollars with a term to maturit

Investment performance, Hi I would like to know how you could assist on su...

Hi I would like to know how you could assist on subject title assignment and pricing

Write Your Message!

Captcha
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