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d. Today is 1 August 2008. Illustrate how a South African Arbitrageur can earn risk-free profit with an attempt to earn NT Forward Premium based

d. Today is 1 August 2008. Illustrate how a South African Arbitrageur can earn risk-free profit with an attempt to earn NT Forward Premium based on the following quotation from Bank of Taiwan. Assume a 12-month investment horizon. (10 marks)

Bid Ask

S₀ (NT/R): 3.95 4.05

F_12/12 (NT/R): 3.32 3.38

Invest Borrow

Taiwan 1.6% p.a. 2.6%p.a.

South Africa 10% 18%

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