Consider a three-month forward contract on pound sterling. Suppose the spot exchange rate is $1.40/, the three-month
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Consider a three-month forward contract on pound sterling. Suppose the spot exchange rate is $1.40/£, the three-month interest rate on the dollar is 5%, and the three-month interest rate on the pound is 5.5%. If the forward price is given to be $1.41/£, identify whether there are any arbitrage opportunities and how you would take advantage of them.
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