# [Solved] National Bank Quotes the Following for the British Pound and the New

## National Bank quotes the following for the British pound and the New Zealand dollar:

Assume you have $10,000 to conduct triangular arbitrage. What is your profit from implementing this strategy?

A) $77.64.

B) $197.53.

C) $15.43.

D) $111.80.

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- Q49:If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank, locational arbitrage is possible.
- Q50:If interest rate parity (IRP) exists, then the rate of return achieved from covered interest arbitrage should be equal to the rate available in the foreign country.
- Q51:Exhibit 7-1 Assume the following information: You have $300,000 to invest: The spot bid rate for the euro (€) is $1.08 The spot ask quote for the euro is $1.10 The 180-day forward rate (bid) of the euro is $1.08 The 180-day forward rate (ask) of the euro is $1.10 The 180-day interest rate in the U.S. is 6% The 180-day interest rate in Europe is 8% -Refer to Exhibit 7-1. If you conduct covered interest arbitrage, what is your percentage return after 180 days? Is covered interest arbitrage feasible in this situation? A) 7.96%; feasible B) 6.04%; feasible C) 6.04%; not feasible D) 4.07%; not feasible E) 10.00%; feasible
- Q52:Assume the following information: You have $900,000 to invest: If you conduct covered interest arbitrage, what is the dollar profit you will have realized after 180 days? A) $56,903. B) $61,548. C) $27,000. D) $31,500.
- Q53:To capitalize on high foreign interest rates using covered interest arbitrage, a U.S. investor would convert dollars to the foreign currency, invest in the foreign country, and simultaneously sell the foreign currency forward.
- Q55:According to interest rate parity (IRP): A) the forward rate differs from the spot rate by a sufficient amount to offset the inflation differential between two currencies. B) the future spot rate differs from the current spot rate by a sufficient amount to offset the interest rate differential between two currencies. C) the future spot rate differs from the current spot rate by a sufficient amount to offset the inflation differential between two currencies. D) the forward rate differs from the spot rate by a sufficient amount to offset the interest rate differential between two currencies.
- Q56:For locational arbitrage to be possible, one bank's ask rate must be higher than another bank's bid rate for a currency.
- Q57:Assume locational arbitrage is possible and involves two different banks. The realignment that would occur due to market forces would increase one bank's ask rate and would decrease the other bank's bid rate.
- Q58:The foreign exchange market is an over-the-counter market.
- Q59:Assume the following information: You have $400,000 to invest: If you conduct covered interest arbitrage, what amount will you have after 90 days? A) $416,000.00. B) $416,800.00. C) $424,242.86. D) $416,068.77. E) none of the above

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