Solve the following problem:
Assume that the pound's depreciation over the year was attributed directly to central bank intervention. Explain the type of direct intervention that would place downward pressure on the value of the pound.
question 1 As an employee of the foreign exchange department for a large company, you have
been given the following information:
Beginning of Year
Spot rate of £ ¼ $1.
rate of Australian dollar (A$) ¼ $.70
Cross exchange rate: £1 ¼ A$2.28
One-year forward rate of A$ ¼ $.71
One-year forward rate of £ ¼ $1.58004
One-year U.S. interest rate ¼ 8.00%
One-year British interest rate ¼ 9.09%
One-year Australian interest rate ¼ 7.00%
Determine whether triangular arbitrage is feasible and, if so, how it should be conducted to make a profit.