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Homework answers / question archive / If the Spot rate of EGPJPY is 6
If the Spot rate of EGPJPY is 6.65 and the forward rate is 6.89. You are also given that the EGP interest rate is 8.25%, whereas the JPY interest rate is 8.59%. Compare the interest and exchange rates agios. State whether there is an arbitrage opportunity based on your calculation or not. (Round to two decimals)
Exchange rate in Forward Market according to the interest rate parity
= Spot rate (1+foreign interest rate)/(1+domestic interest rate)
= 6.65(1.0859/1.0825)
= 6.670
The current rate has been 6.89so it can be said that there is an arbitrage opportunity because both the rates are not similar.
