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Instruction: The first number is U.S. interest rat...

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Instruction: The first number is U.S. interest rate -Foreign interest rate. For example for 1-year forward Yen of 4.5%, it is the U.S 1-year rate less Japanes 1-year rate. The number in the parenthesis is 5 for 1-year forward yen. This number is the forward premium in yen as it is positive. Question: Suppose you can borrow $10 million or its yen equivalent, what actions would you take in 1-year yen forward market in order to make arbitrage profit? How much arbitarage profit you are likely to make?

 

Paper#1266 | Written in 18-Jul-2015

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