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Assume that the risk-free rate is 4% in the U.S. and 5& in the U.K.. The current exchange rate is 2 per pound. What is
Assume that the risk-free rate is 4% in the U.S. and 5& in the U.K.. The current exchange rate is 2 per pound. What is the arbitrage free futures price for a 1-year contract? Set up an arbitrage strategy and calculate the associated profits if the initial futures price were 2.01 per pound.
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