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Investment Fund specializes in global investing. The chief trader is always looking out for violations of the interest rate parity relationship between USD and GBP
Investment Fund specializes in global investing. The chief trader is always looking out for violations of the interest rate parity relationship between USD and GBP (sterling). She knows full well that any violation of the relationship creates an opportunity for arbitrage. She evaluated the following information to compute forward rates and to determine if arbitrage potential exists. Risk freerate in US Risk freerate in UK Current exchange rate 2.15% 185% $137/E 1yr rate 1yr rate a COMPUTE the 1yr forward exchange rate implied by the risk free US and UK rates (3 DECIMAL PLACES] b If the chief trader is shown a forward rate of $135/, is there an opportunity for arbitrage? If there is an opportunity for arbitrage, show the three steps to take advantage of this opportunity, and COMPUTEtheriskless profit
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