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  • Assignment Week8

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    Battsetseg Natsagdorj
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    Market forces should realign the relationship between the interest rate differential of two currencies. One bank's ask price for a currency is greater than another bank's bid price for the currency. If the interest rate is lower in the u.s. Than in the united kingdom, investors could benefit from covered interest arbitrage.

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    Market forces should realign the relationship between the interest rate differential of two currencies. One bank's ask price for a currency is greater than another bank's bid price for the currency. If the interest rate is lower in the u.s. Than in the united kingdom, investors could benefit from covered interest arbitrage.

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    Attribution Non-Commercial (BY-NC)
    Baixe no formato PDF, TXT ou leia online no Scribd
    Sinalizar o conteúdo como inadequado
    65 visualizações1 página

    Assignment Week8

    Enviado por

    Battsetseg Natsagdorj
    Market forces should realign the relationship between the interest rate differential of two currencies. One bank's ask price for a currency is greater than another bank's bid price for the currency. If the interest rate is lower in the u.s. Than in the united kingdom, investors could benefit from covered interest arbitrage.

    Direitos autorais:

    Attribution Non-Commercial (BY-NC)
    Baixe no formato PDF, TXT ou leia online no Scribd
    Sinalizar o conteúdo como inadequado
    de 1

    Assignment for Week8

    BA672-International Financial Management

    MultipleChoice
    Thisactivitycontains5questions.Pleasewriteyouranswerchoicesinthebodyofyouremail. 1. Due to __________, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) ontheforwardexchangeratebetweenthetwocurrencies. a. forwardrealignmentarbitrage b. triangulararbitrage c. coveredinterestarbitrage d. locationalarbitrage 2. Inwhichcasewilllocationalarbitragemostlikelybefeasible? a. Onebank'saskpriceforacurrencyisgreaterthananotherbank'sbidprice forthecurrency. b. Onebank'sbidpriceforacurrencyisgreaterthananotherbank'saskprice forthecurrency. c. Onebank'saskpriceforacurrencyislessthananotherbank'saskpricefor thecurrency. d. Onebank'sbidpriceforacurrencyislessthananotherbank'sbidpricefor thecurrency. 3. IftheinterestrateislowerintheU.S.thanintheUnitedKingdom,andiftheforward rateoftheBritishpoundisthesameasitsspotrate: a. U.S.investorscouldpossiblybenefitfromcoveredinterestarbitrage. b. Britishinvestorscouldpossiblybenefitfromcoveredinterestarbitrage. c. neitherU.S.norBritishinvestorscouldbenefitfromcoveredinterest arbitrage. d. AandB 4. Basedoninterestrateparity,thelargerthedegreebywhichtheforeigninterestrate exceedstheUKinterestrate,the: a. largerwillbetheforwarddiscountoftheforeigncurrency. b. largerwillbetheforwardpremiumoftheforeigncurrency. c. smallerwillbetheforwardpremiumoftheforeigncurrency. d. smallerwillbetheforwarddiscountoftheforeigncurrency. 5. Forlocationalarbitragetobepossible,onebank'saskratemustbehigherthan anotherbank'sbidrateforacurrency. a. True b. False

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