Arbitrage

Suppose one observed the following direct spot quotations in New York and London,respectively: 1.2500-60 and 0.8000-50. Arbitrage profits per $1 million equal(a) $637(b) $0(c) $1,268(d) $4,492(e) None of the above

Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, that the spot exchange rate is $1.60/€ and that the forward exchange rate, with one-year maturity, is $1.50/€. Assume that an arbitrager can borrow up to $1,000,000 or €625,000. If an astute trader finds an arbitrage, what is the net cash flow in one year?

Consider the following prices from a McDonald's Restaurant:Big Mac Sandwich$2.99Large Coke$1.39Large Fries$1.09 A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich, a Large Coke, and one Large Fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac Extra Value Meal® for $4.79. Does an arbitrage opportunity exist and if so how would you exploit it? How much would you make on one extra value meal?a.No, no arbitrage opportunity exists.b.Yes, buy the Extra Value Meal® and then sell Big Mac, Coke, and Fries to make an arbitrage profit of $0.68.c.None of them.d.Yes, buy a Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $0.68.e.Yes, buy Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $1.09.

COVERED INTEREST ARBITRAGE Explain the concept of covered interestarbitrage and the scenario necessary for it to be plausible.

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be: Question 5 Answer a. $937.50. b. 937 pesos. c. 9600 pesos. d. $790.