Question
A spot exchange rate is BAS1.0000=TER0.6976. The interest rate (per annum) in the country of the base currency (BAS) is 5%, and in the country
A spot exchange rate is BAS1.0000=TER0.6976. The interest rate (per annum) in the country of the base currency (BAS) is 5%, and in the country of the terms currency (TER) is 3%, both continuously compounded. The forward rate quoted on a 6 month contract is BAS1.0000=TER0.7046.
You are an expert in foreign currency and you calculate that the correct forward rate on a 6 month contract should be BAS1.0000=TER ? . Give your answer correct to four decimal places. Therefore, you conclude that the forward rate quoted is too ?.
On a principal of TER1,000,000, you can make an arbitrage profit of TER ? . Give your answer to the nearest whole number. Do not include commas in your answer.
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