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Ifm - Nhom 18
Ifm - Nhom 18
Nguyễn Võ Hà Phương
Trần Thụy Yến Thu
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Nguyễn Thụy Thùy Dung
Nguyễn Thụy Hà Giang
Homework
1. Explanation of arbitrage opportunity:
To earn an arbitrage opportunity, we must consider the different between IRP and
Forward Premium
-IRP (in 2017) = ih – if = 6.5% - 0.52% = 5.98%
F−S 22710−22593
-Forward Premium (1year forward contract) = = = -0.51%
S 22593
The absolute value of IRP is higher than absolute value of Forward Rate so the point will
not belong to IRP line. Thus, there is an arbitrage opportunity
H (5.98 ; -0.51)
2. Arbitrage Strategy
Basing on the date and explanation, we will use Cover Interest Arbitrage
-Interest Arbitrage: On January 1s t 2017, we borrow $1000 and convert into VND
22,539,000 to deposit in Vietnamese Bank at 6.5% interest rate. Then we sign a 1 year
forward contract of buying $1005.2 at VND 22,828,092
-Covered Hedging: On January 1s t 2018, we will receive VND 24,004,035 (100%
deposit and 6.5% interest payment). Then we use the forward contract to pay $1005.2 at
VND 22,828,092