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CHAPTER 7 International Arbitrage and Interest Rate Parity

COPYRIGHT Š 2008 South-Western/Cengage Learning.


Exhibit 7.1 Currency Quotes for Locational Arbitrage Example


Exhibit 7.2 Locational Arbitrage


Exhibit 7.3 Example of Triangular Arbitrage


Exhibit 7.4 Currency Quotes for a Triangular Arbitrage Example


Exhibit 7.5 Example of Triangular Arbitrage Accounting for Bid/Ask Spreads


Exhibit 7.6 Impact of Triangular Arbitrage


Exhibit 7.7 Example of Covered Interest Arbitrage


Exhibit 7.8 Comparing Arbitrage Strategies


Exhibit 7.9 Illustration of Interest Rate Parity


Exhibit 7.10 Forward Rate Premiums and Interest Rate Differentials for Five Currencies

Note: The data are as of April 13, 2007. The forward rate premium is based on the 6-month forward rate and is annualized. The interest rate differential represents the difference between the 6-month annualized U.S. interest rate and the 6-month foreign interest rate.


Exhibit 7.11 Potential for Covered Interest Arbitrage When Considering Transaction Costs


Exhibit 7.12 Quoted Interest Rates for Various Times to Maturity


Exhibit 7.13 Relationship between Interest Rate Differentials and Forward Rate Premiums over Time


Exhibit 7.13 Relationship between Interest Rate Differentials and Forward Rate Premiums over Time (continued)


Exhibit 7.13 Relationship between Interest Rate Differentials and Forward Rate Premiums over Time (continued)


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