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Assume I can borrow at 5.1% and lend at 4.9% in domestic currency , and I can borrow at 7.1% and lend at 6.9% in
Assume I can borrow at 5.1% and lend at 4.9% in domestic currency , and I can borrow at 7.1% and lend at 6.9% in foreign currency. ( all rates with continous compounding .
Also I can buy F$1 at spot for D$2.01 and I can sell F$1for at spot D$1.99. ( F$ -foreign currency, D$- domestic currency ).
A. What is the lowest price at which I would be allowed to buy F$1s 1year forward , without have an arbitrage opportunity ?
B. What is the highest price at which I would be allowed to sell F$s 1 year forward?
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