Question
As an arbitrageur in the FX market, you are checking the Australian Dollar (AUD) Indian Rupee(INR) pair. As of today (31 May 2022), you observe
As an arbitrageur in the FX market, you are checking the Australian Dollar (AUD) Indian Rupee(INR) pair. As of today (31 May 2022), you observe a spot exchange rate of 55.91 INR per AUD. In Australia the risk-free rate is now at 3.50%, while in India is at 3.98%. Those interest rates are per annum, with continuous compounding. You see the following forward rates on your screen: Maturity Rate September 2022. 55.3505 November 2022 56.0444 Is there an arbitrage profit opportunity? If so, how could you take advantage of it? Note: Ignore transaction costs and assume the forward contracts expire at the of the respective month.
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