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Given that i=0.09; i*=0.0025; F(HC/FC )= 7.80; S(HC/FC) = 7.30, discuss if there is an arbitrage opportunity. What would you do if you are an
Given that i=0.09; i*=0.0025; F(HC/FC )= 7.80; S(HC/FC) = 7.30, discuss if there is an arbitrage opportunity. What would you do if you are an arbitrageur?
Considering the actions that arbitrageurs are likely to take, explain in detail what you expect to happen (movements) for IRP condition to hold again?
(Note: interest rates are annual and forward rate is for a 12-month contract).
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