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Quotes for the US dollar and Thai Baht (Bt) are as follows:Spot contract midpoint = Bt24.96/$1-year forward contract midpoint = Bt25.64/$1-year Eurodollar interest rate = 6.125% annuallya. Your newspaper does not quote 1-year Eurocurrency interest rates on Thai baht. Make your own estimate.b. Suppose that you can either borrow or lend at a Thai Eurocurrency interest rate of 10% per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?
Quotes for the US dollar and Thai Baht (Bt) are as follows:Spot contract midpoint = Bt24.96/$1-year forward contract midpoint = Bt25.64/$1-year Eurodollar interest rate = 6.125% annuallya. Your newspaper does not quote 1-year Eurocurrency interest rates on Thai baht. Make your own estimate.b. Suppose that you can either borrow or lend at a Thai Eurocurrency interest rate of 10% per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?
