Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 15 Aug 2017 My Price 9.00

Eurocurrency interest rates

4.11     Quotes for the U.S. dollar and Thai baht (Bt) are as follows:

 

 

Spot contract midpoint                           S0

 

Bt/$

 

= Bt24.96/$

 

1-year forward contract midpoint  F1

 

 

Bt/$

 

= Bt25.64/$

 

1- year Eurodollar interest rate               i$ = 6.125% per year

 

a.    Your newspaper does not quote 1-year Eurocurrency interest rates on Thai baht. Make your own estimate of iBt.

b.    Suppose that you can trade at S0Bt/$, F1Bt/$, and i$ and that you also can either borrow or lend at a Thai Eurocurrency interest rate of iBt = 10 percent per year. Based on a $1 million initial amount, how much profit

can you generate through covered interest arbitrage?

Answers

Maurice Tutor
(5)
Status NEW Posted 15 Aug 2017 08:08 AM My Price 9.00

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