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    Amity Business School: MBA, Semester 3 International Finance Mr. Vaibhav Gupta

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    The document discusses various concepts related to international finance including arbitrage opportunities between different currency exchange rates, purchasing power parity, and hedging transactions exposure. It provides examples of spot exchange rates between USD/INR quoted by different banks showing potential two-point arbitrage opportunities. It also discusses cross rates using USD/INR, USD/GBP and GBP/INR quotes and determining if a three-point arbitrage is possible. Another section covers covered interest arbitrage using USD/INR spot and forward rates along with different interest rates in US and India.

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    Amity Business School: MBA, Semester 3 International Finance Mr. Vaibhav Gupta

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    11 views10 pages
    The document discusses various concepts related to international finance including arbitrage opportunities between different currency exchange rates, purchasing power parity, and hedging transactions exposure. It provides examples of spot exchange rates between USD/INR quoted by different banks showing potential two-point arbitrage opportunities. It also discusses cross rates using USD/INR, USD/GBP and GBP/INR quotes and determining if a three-point arbitrage is possible. Another section covers covered interest arbitrage using USD/INR spot and forward rates along with different interest rates in US and India.

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    The document discusses various concepts related to international finance including arbitrage opportunities between different currency exchange rates, purchasing power parity, and hedging transactions exposure. It provides examples of spot exchange rates between USD/INR quoted by different banks showing potential two-point arbitrage opportunities. It also discusses cross rates using USD/INR, USD/GBP and GBP/INR quotes and determining if a three-point arbitrage is possible. Another section covers covered interest arbitrage using USD/INR spot and forward rates along with different interest rates in US and India.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    Download as ppt, pdf, or txt
    11 views10 pages

    Amity Business School: MBA, Semester 3 International Finance Mr. Vaibhav Gupta

    Uploaded by

    kartik_bansal_1
    The document discusses various concepts related to international finance including arbitrage opportunities between different currency exchange rates, purchasing power parity, and hedging transactions exposure. It provides examples of spot exchange rates between USD/INR quoted by different banks showing potential two-point arbitrage opportunities. It also discusses cross rates using USD/INR, USD/GBP and GBP/INR quotes and determining if a three-point arbitrage is possible. Another section covers covered interest arbitrage using USD/INR spot and forward rates along with different interest rates in US and India.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    Download as ppt, pdf, or txt
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    Amity Business School

    Amity Business School


    MBA, Semester 3 International Finance Mr. Vaibhav Gupta

    Arbitrage in Spot Markets Business School Amity


    Arbitraging between Banks
    HDFC 48.2015/48.2050 ICICI 48.2010/48.2020

    USD/INR:

    USD/INR:

    HDFC 48.2015/48.2050

    Axis 48.2000/48.2010

    Inverse Quotes and Two-Point Arbitrage School Amity Business


    Quote available from a HDFC, Mumbai: USD/INR: 48.2015/48.2025 Quote available in a Bank in Citibank, Chicago: INR/USD: 0.0210/0.0218 Is there an arbitrage opportunity?

    Cross Rates and Three Point Arbitrage School Amity Business


    A New York Bank is offering these spot quotes: USD/INR:48.2015/48.2050 USD/GBP: 0.6192/0.6210

    A Bank in London is quoting: GBP/INR: 80.1010/80.1020


    Is there an arbitrage opportunity?

    Covered Interest Arbitrage Business School Amity


    Suppose the market rates are as follows: USD/INR spot:48.2015 6-month forward: 49.2015 Euro$ 6-month interest rate: 4.50% p.a. EuroINR 6-month interest rate: 6.50% p.a. A Indian Firm needs $1 million to settle an import bill A US Firm needs INR 1 million 6 months from now to pay off a maturing payable.

    Purchasing Power Parity Business School Amity


    The spot rate for USD/INR is 48.25. Consumer Price Index (CPI) in India is 500 and in USA it is 300. If relative Purchasing Power parity holds, then what will be the real exchange rate. Assume that both price indices have the same base year.

    Purchasing Power Parity Business School Amity


    At the end of Oct 2011, USD/INR exchange rate was 49.10 while at the end of Oct 2001, it was 40.60 CPI in India at the end of Oct 2011 with Oct 2001 as base was 180, while CPI in US with same base year was 120. Suppose an exporter was selling a product in US in 2001 priced at USD 1000. Suppose an importer was buying a product from US in 2001 priced at USD 1000.

    Hedging of Transactions Exposure Amity Business School


    On Nov 1, an Indian firm has USD 10 Mn payable due on Feb 1. Market rates are as follows: USD/INR Spot: 49.1010/20 90 days swap points: 50/70 Feb calls with a strike of 49.1050 are available for a premium of 0.0030 per dollar Open Position Forward Hedge A Call Option

    Amity Business School

    vaibhavgupta_2004@yahoo.com Saturday

    Amity Business School

    Thank You

    10

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