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What is Currency Exchange and Arbitrage Insights about?

1. Calculate the theoretical 1-year forward rates using interest rate parity (IRP). 2. Compare the theoretical rates to the market forward rates. 3. If any theoretical rate differs from the market rate, an arbitrage opportunity exists by borrowing the low rate currency and lending the high rate currency. 4. In this case, the £/€ theoretical forward rate using IRP is 2.0306, higher than the market rate of 2.0292. An arbitrageur could borrow € and lend £ to profit.

Author

tristan.riols

Language

EN