A Trader Has $1 Million Available for Exploiting an Arbitrage

question 341

Multiple Choice

A trader has $1 million available for exploiting an arbitrage opportunity. Given the following information, determine if such an opportunity exists and if so, the maximum amount of profit that
Can be made by utilizing the $1 million. Ignore all trading costs and taxes.[LINE][LINE]S0 =
¥87[LINE]F1 = ¥84 (1-year forward) [LINE]RCDN = 5%[LINE]RS = 3%

• A) -$54,333
• B) -$20,000
• C) $5,667
• D) $16,785
• E) $31,034

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Definitions:

Exponent

An exponent refers to a mathematical notation indicating the number of times a number (the base) is multiplied by itself.

Normal Distribution Curve

A bell-shaped curve that represents the distribution of a set of data where most observations cluster around the mean.

Binomial Distribution Curve

A probability distribution graph that represents the likelihood of a given number of successes over a series of trials, with only two possible outcomes.

Poisson Distribution Curve

A graphical representation of the Poisson distribution, showing the probability of a given number of events over a fixed interval.