Problem $5$

The quotation in the USA is: $\frac{\text{\$}}{}=1\mathrm{.}8443-1\mathrm{.}8539.$ A UK resident is undertaking exchange

rate arbitrage and faces the following quotation in her domestic market: $\frac{}{\text{\$}}=0\mathrm{.}54238-$

$0\mathrm{.}54520.$ Is there a possibility of getting the risk$-$free profit in this case? If so $-$ explain how using

the step$-$by$-$step approach.

Problem $6$

The following indirect quotation of Swiss franc to British pound is given: $SF\frac{r}{}=2\mathrm{.}2714.$ The

$1-$year futures contract rate is set at the level of $2\mathrm{.}2784.$ Interest rates in Britain and Switzerland

are $4\mathrm{.}7\%$ and $4\%$ respectively. Is there an interest rate arbitrage opportunity in this case?

Describe the arbitrage transactions step$-$by$-$step. What the annual interest rate in Switzerland

should be to disable the interest rate arbitrage?