Suppose that the following prices are quoted in the markets, Ask an Expert

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Suppose that the following prices are quoted in the markets where forward rates and interest rates on Euro-$ and on Euro-¥ are all for 1-year ahead.

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Spot (¥/$) 99.95 100.05

Forward(¥/$) 97.00 98.00

Euro-$ (%) 4.95 5.05

Euro-¥ (%) 1.95 2.05

Which of the following is true?

The strategy that borrows ¥ in Euro-¥ market and invests equivalent in Euro-$ market is profitable.

There is insufficient information for making a judegment.

The strategy that borrows $ in Euro-$ market and invests equivalent in Euro-¥ market is profitable.

It is impossible to make an arbitrage profit.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92820931

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