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Suppose that the current spot exchange rate is 1.50/ and the six-month forward exchange rate is 0.625/. The one-year interest rate is 5.4% in euros
Suppose that the current spot exchange rate is 1.50/ and the six-month forward exchange rate is 0.625/. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most 2,000,000 or the equivalent pound amount at the current spot exchange rate. Show how and explain how as a Pound investor, you will take advantage of this if any opportunity exists
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