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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

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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. (a) What is the theoretical one-year forward exchange rate? (b) 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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