international finance exchange rates

VID 27% 19:52 2020BE630-6-AU-RESIT - Saved ... BE630-6-SP-RESIT/S QUESTION THREE (a) What is a carry trade? Are the profits from carry trade risk-free? (5 marks) (b) Let the spot rate between the UK and Canada be 4.9 CAD/GBP, and the Canadian 6 month (annualised) interest rate is 4% and the 6 month (annualised) UK interest rate is 10%. What should the market quoted forward rate be to ensure there is no arbitrage opportunity? (5 marks) (c) If the actual forward rate was 5 CAD/GBP, demonstrate how you make an arbitrage profit with 1 CAD. (5 marks) [TOTAL - 15 MARKS] END OF QUESTON THREE END OF SECTION A