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Chapter 5
Chapter 5
Europe US
Nominal 1 year 4% ?
Interest
Expected inflation 2% 1%
3. The Singapore dollar—U.S. dollar (S$/$) spot exchange rate is S$1.60/$, the
Canadian dollar—U.S. dollar (CD/$) spot rate is CD1.33/$ and the S$/CD1.15.
Determine the triangular arbitrage profit that is possible if you have $1,000,000.
5. Suppose the Canadian dollar is currently traded at C$ 1.40/$. The Deutsche mark
is traded at DM 1.39/$. Ignoring transaction costs:
a. Determine the C$/DM exchange rate consistent with these direct quotations.
b. Suppose the C$/DM cross rate in the market was at C$ 1.05/DM. Is there any
arbitrage opportunity?
c. How would you take advantage of any arbitrage situation?
d. What is your profit?