Consider the following futures prices for Brazilian reals. BRAZILIAN REALS (CME); 100,000 REALS, $ PER REALS

Assume the U.S. risk-free rate is 4.25%(continuously compounded rate) and

that the risk-free rates in the U.S. and Brazil will be constant over the next six

months. Assume the March contract matures in two months.

a. What is the risk-free rate in Brazil?

b. What is the current dollar/real exchange rate in $/real?

c. If the June futures price was 0.500, instead of 0.0475, show how you could earn

an arbitrage profit. (Tell me what position you would take and the cash flows).

Assume that you can buy or sell fractional amounts. For example, you can buy

future for 0.976 reals.

2. Consider the following futures prices for Brazilian reals. BRAZILIAN REALS (CME); 100,000 REALS, $ PER REALS ) OPEN HIGH LOW CLOSE MAR .051450 .052090 .051050 .051130 JUNE .047500 .047500 .047500 .04750 Assume the U.S. risk-free rate is 4.25% (continuously compounded rate) and that the risk-free rates in the U.S. and Brazil will be constant over the next six months. Assume the March contract matures in two months. a. What is the risk-free rate in Brazil? b. What is the current dollar/real exchange rate in $/real? c. If the June futures price was .0500, instead of .0475, show how you could earn an arbitrage profit. (Tell me what position you would take and the cash flows). Assume that you can buy or sell fractional amounts. For example, you can buy future for .976 reals