Description
A U.S financial specialist can obtain $1,000,000 or 500,000 GBP. The spot rate is $2.20/GBP, the one year forward rate is $2.24/GBP. The US one year financing cost is 14% and the one year British loan fee is 11%. Figure out whether there is a secured loan fee arbitrage opportunity, and assuming this is the case, demonstrate every progression required in the arbitrage opportunity.
Explanation & Answer
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Arbitrage alludes to a risk free trading profit. An arbitrage opportunity exists assuming either
1. An investor can make an arrangement that would give her or him a quick benefit, with no
danger of future misfortune, or
2. A financial specialist can make an arrangement that has zero introducto...
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