(Answered) A foreign trader at the banks tx desk calls to inform you

Statistics

A Foreign trader at the bank's TX desk calls to inform you that the company TD Bank is quoting $1.20/€1, and Bank of America is offering $1.40/£1. The trader also noticed thatCredit Z is also making the market in pound sterling and the use of Euros at €1.20/£1.

a. How you would use the $1 million to conduct a triangular arbitrage to profit from the deviation of the implied cross rate of the €/£, from the rate quoted by Credit Z.

b.You observed that the 3-month forward rate quote from TD Bank is $1.30/€1. Calculate the forward premium suggested by the quote.

c.What do the investors expect to happen to the value of the dollar for the next three months?

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