4:25 - "To exploit this, you borrow, say $5 million at the lower U.S. rate and invest at the higher Swiss rate" - you gave an example where, previously, 𝑟_𝑈𝑆 = 10 % and 𝑟_𝑆 = 5 % So, how come Us rate is lower here?
I really appreciate your efforts in making this video but your statement at 3:50 "This is a 10.53 % return, which is higher than the U.S. interest rate of 10 %" seems to be incorrect. if given 𝑟_𝑈𝑆 = 10 % and 𝑟_𝑆 = 5 % with USD/SWF = 1,00/2,00 than forward exchange rate would be =1,909090...(you got just 1,90) and if so, in 2nd strategy: 2,10/1,909090.. = 1,10000052... That is the 1st strategy gives $1.10; 2nd strategy - $1,100000...52... they are equally the same, according to Interest rate parity
So how does one recognize an arbitrage opportunity just by looking at it? Do they calculate something first to see whether or not it's there? What do they look for?
4:25 - "To exploit this, you borrow, say $5 million at the lower U.S. rate and invest at the higher Swiss rate" - you gave an example where, previously, 𝑟_𝑈𝑆 = 10 % and 𝑟_𝑆 = 5 % So, how come Us rate is lower here?
where it comes from 10.53%?
great content as always, but im curious right... why not borrow in swiss and invest in USD, seeing that USD has a higher profit?
AT 4.17 Its says that the total return is 10.53% after converting it back to USD.That is higher than 10%
I really appreciate your efforts in making this video but your statement at 3:50 "This is a 10.53 % return, which is higher than the U.S. interest rate of 10 %" seems to be incorrect.
if given 𝑟_𝑈𝑆 = 10 % and 𝑟_𝑆 = 5 % with USD/SWF = 1,00/2,00 than forward exchange rate would be =1,909090...(you got just 1,90) and if so, in 2nd strategy: 2,10/1,909090.. = 1,10000052...
That is the 1st strategy gives $1.10; 2nd strategy - $1,100000...52... they are equally the same, according to Interest rate parity
So how does one recognize an arbitrage opportunity just by looking at it? Do they calculate something first to see whether or not it's there? What do they look for?
+StevelandPS3 You have to work through the math to make sure the relationships hold. Traders would program this information into their computers.
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