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17 Consider the following information. The spot price of the British pound is USD 1.7356. The forward price of a 90 day forward contract on
17
Consider the following information. The spot price of the British pound is USD 1.7356. The forward price of a 90 day forward contract on the British pound is USD 1.7566. A 90 day European call option on British pounds with an exercise price of USD 1.7166 has a premium of USD 0.03. The risk free interest rate is 5% annually compounded. Assume that there are 365 days in a year. An arbitrage would involve: O a. Selling the 90-day forward and writing the 90-day European call. Ob. Buying the 90-day forward and writing the 90 day European call. c. Buying the British pounds in the spot market by borrowing the purchase price and selling the 90-day forward d. Selling the 90-day forward and buying the 90-day European call Step by Step Solution
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