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Assume the spot rate is 3.9 NZD/GBP (NZD=New Zealand Dollar). One-year interest rates are: iGBP=6.5% and iNZD=5.8%. (1) Calculate the IRP one-year forward NZD/GBP rate.
Assume the spot rate is 3.9 NZD/GBP (NZD=New Zealand Dollar). One-year interest rates are: iGBP=6.5% and iNZD=5.8%.
(1) Calculate the IRP one-year forward NZD/GBP rate.
(2) Suppose a bank offers a one-year forward rate equal to 4.1 NZD/GBP. Design a trading strategy to take advantage of the mispricing.
(3) Calculate the arbitrage profits.
Assume the spot rate is 3.9 NZD/GBP (NZD=New Zealand Dollar). One-year interest rates are: iGBP=6.5% and iNZD=5.8%.
(1) Calculate the IRP one-year forward NZD/GBP rate.
(2) Suppose a bank offers a one-year forward rate equal to 4.1 NZD/GBP. Design a trading strategy to take advantage of the mispricing.
(3) Calculate the arbitrage profits.
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