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2. Explain how a trader can exploit an arbitrage opportunity using the spot market and the forward market, after discovering a difference in interest rate

2. Explain how a trader can exploit an arbitrage opportunity using the spot market and the forward market, after discovering a difference in interest rate returns on two currencies. Table: Currency Values II: How Much One U. S. Dollar Will Buy of Other Currencies in 2007 and 2008 Currency 2007 2008 $1 1.5 euros one euro $1 2 Brazilian reais (real) 1.5 Brazilian reais (real) $1 2 British pounds 3 British pounds $1 45 Indian rupees 50 Indian rupees

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