Euro and Yen{play the market}

[vishalgnu]

Euro is finding itself loosing against the Dollar , and it may further more deteriorate with reports of slowing growth dampening inflation hence reducing the chances of the European Central Bank from raising interest rates into 2007.

Whereas , on the other hand , Euro is in a much better position when compared to the Yen . This year the Euro has risenmore than 7 percent against the Yen , the driving force being the varied interest rates between the two currencies.

If, the Euro is weak against the Dollar, The yen seems to be ever weaker than the Euro , I feel that the Yen and Euro will decline as both these currencies are being sold heavily in the market .

play the market...

 

[sharegate]

Its the time to revise the Interest rates in Europe by the European central bank. Euro and Yen currency sellings will increase if it continue for a longtime and Currency Arbitragers will get the benefit from the weakened currencies.

 

[mohanlate]

What is the forward currency exchange rates on Euro and Yen? IS there an arbitrage opportunity?

The following formula gives the arbitrage =

arbitrage (pure riskless profit) = Forward rate - {Spot currency rate * [(1+domestic interest rate)/(1+foregin interest rate)]}

The spot currency rate is in the form of domestic/foregn...e.g. for a person residing in Europe, the domestic currency is Euro and the spot rate will be in the form of Euro/Dollar. The domestic interest rate with the rate of interest in his country.
You need 4 things to calculate this -
a. The Spot or current currency coversion rate in Euro/Dollar or Euro/Yen
b. The 1 year forward currency contract rate. This is a 1 yr forward contract rate in the form of Euro/Dollar
c. The interest rate in Europe
d. The interest rate in USA

Thanks,
Mohan

 

[sharegate]

I didnt calculated the arbitrage gain. I was just expected.

Thanks for the reply mohan.