Speculation and arbitraging in foreign exchange market, Corporate Finance

Assignment Help:

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?


Related Discussions:- Speculation and arbitraging in foreign exchange market

Sales and lost demand data, The total sales are not necessarily equal to to...

The total sales are not necessarily equal to total demand, since some demand may have been lost. For the case that lost demand is not recorded at all, Fisher et al. (2000) propose

Calculate the stock rate of distribution, A owns all of the stock of X.  Th...

A owns all of the stock of X.  The stock's basis is $100.  X has a total of current and accumulated earnings and profits of $50.  X distributes $200 cash to A "with respect to his

Bond valuation, An investor buys a French government, 10-year bond, paying ...

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6

Stock market, Let there be a village with two farmers, Tommy and Freddy. To...

Let there be a village with two farmers, Tommy and Freddy. Tommy grows rice and Freddy grows cactus. When the weather is dry then Tommy's investment in cactus has an above average

Financial modelling, Financial Modelling Read carefully the case notes ...

Financial Modelling Read carefully the case notes overleaf. Factor models on explaining firm's returns in a credit risk context. Is the usual one-factor model good enough?

Experts averag - forecasting methods, This method simply calculates the ave...

This method simply calculates the average of a number of expert estimates. Let E denote the number of experts, and mn,e denote the forecast of expert e, e =1, ... ,E, for SKU n 2N.

Calculate the present value of a company''s bonds, 1. How do you calculate ...

1. How do you calculate the present value of a Company's bonds? 2. "An analysis of the magnitude and stability of cash flows comparative to fixed charges is very important in de

What do you understand by internal control, Question: The District Cash...

Question: The District Cash Offices represents the decentralisation of services provided by the Accountant - General Department, specially in the collection and accounting of r

Mr, PROBLEM 1 A friend of yours, employed as a Tier 2 field service repres...

PROBLEM 1 A friend of yours, employed as a Tier 2 field service representative for a telephony corporation, wants your help as a financial specialist to determine the financial co

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