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Problem 3 The current exchange rate between Korean Won ( KRW ) and Hong Kong Dollar ( HKD ) is 1 4 0 K R

Problem 3 The current exchange rate between Korean Won (KRW) and Hong Kong
Dollar (HKD) is 140KRW per HKD. Moreover, the risk-free rates per annum compounded
continuously in KRW and HKD are given by 5% and 3% respectively. Lee Hyori, a Korean,
observes that the 2-year forward exchange rate is 150KRW per HKD. Help her to exploit
arbitrage profit by constructing a trading strategy. (In each action, state clearly what
currencies you are dealing with.)
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