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5.19 Suppose the spot $/ exchange rate is 0.008, the 1-year continuously compounded dollar-denominated rate is 5% and the 1-year continuously compounded yen- denominated rate
5.19 Suppose the spot $/ exchange rate is 0.008, the 1-year continuously compounded dollar-denominated rate is 5% and the 1-year continuously compounded yen- denominated rate is 1%. Suppose the 1-year forward exchange rate is 0.0084. Explain precisely the transactions you could use (being careful about currency of denomi- nation) to make money with zero initial investment and no risk. How much do you make per yen? Repeat for a forward exchange rate of 0.0083
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