Question
Assume that: the present dollar-vs-pound exchange rate is 1.33 USD/GBP; the one- year risk-free return for GBP is RGPB = 1.017; and the one-year risk-free
Assume that: the present dollar-vs-pound exchange rate is 1.33 USD/GBP; the
one- year risk-free return for GBP is RGPB = 1.017; and the one-year risk-free
return for USD is RUSD = 1.006.
What is the theoretical one-year forward exchange rate?
Suppose the one-year forward exchange rate available in the marketplace
is 1.40 USD/GBP. This is more than the theoretical forward exchange
rate, so an arbi- trage is possible. Describe a risk-free strategy for making
money in this situation. How much does it gain, using a forward contract
to buy or sell 100 GBP?
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Principles Of Housing Finance Reform
Authors: Susan M. Wachter, Joseph Tracy
1st Edition
0812248627, 978-0812248623
