Arbitrage based on interest rate differential in Money Market and FX market.

[phantomneo93]

Assume the following rate scenario:
3-month Eurodollars 14.5%
3-month German marks 8.0%
Spot rate for US $ DM 1.7450
3-month Swap rate for $ DM 0.0284
Immediately following the announcement of an increase in the US $ discount rate to 9% by the Federal Reserve, our dealer in Frankfurt checked the Eurodollar rates and found that three month rate had increased to 15.25%. However, swap rate between $ and DM remained the same as given above. What should our dealer do? How much profit in basis point he can make?

 

[Deleted member 4993]

Assume the following rate scenario:
3-month Eurodollars 14.5%
3-month German marks 8.0%
Spot rate for US $ DM 1.7450
3-month Swap rate for $ DM 0.0284
Immediately following the announcement of an increase in the US $ discount rate to 9% by the Federal Reserve, our dealer in Frankfurt checked the Eurodollar rates and found that three month rate had increased to 15.25%. However, swap rate between $ and DM remained the same as given above. What should our dealer do? How much profit in basis point he can make?

What are your thoughts?

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[Hid]

Can someone please help me with this or else I'll fail my final... Asap please

Assume the following rate scenario:
3-month Eurodollars 14.5%
3-month German marks 8.0%
Spot rate for US $ DM 1.7450
3-month Swap rate for $ DM 0.0284
Immediately following the announcement of an increase in the US $ discount rate to 9% by the Federal Reserve, our dealer in Frankfurt checked the Eurodollar rates and found that three month rate had increased to 15.25%. However, swap rate between $ and DM remained the same as given above. What should our dealer do? How much profit in basis point he can make?

I need help

 

[stapel]

Can someone please help me with this or else I'll fail my final... Asap please

I need help

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