Question
Suppose that the current spot exchange rate is 0.7/$ and the 1-year forward exchange rate is 0.8/$. The interest rate is 4 percent annually in
Suppose that the current spot exchange rate is 0.7/$ and the 1-year forward exchange rate is 0.8/$. The interest rate is 4 percent annually in the United States and 5 percent annually in UK. Assume that you can borrow up to $1,000,000 or 800,000.
Is there an arbitrage opportunity? What would be the amount of the arbitrage profit in dollars? Explain the arbitrage process clearly.
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Finance For Non Financial Managers
Authors: Pierre G. Bergeron
5th Edition
0176104070, 9780176104078
