Question
Swedish Krona (SKR) U.S Dollar ($) Inflation rate 5% 1year interest rate 8% 4% Current spot exchange rate S 0 (SKR/$) 8 One-year forward rate
| Swedish Krona (SKR) | U.S Dollar ($) | |
| Inflation rate | 5% | |
| 1year interest rate | 8% | 4% |
| Current spot exchange rate S0(SKR/$) | 8 |
| One-year forward rate F12(SKR/$) | 10 |
a) Based on the International Fisher Effect, what should be the inflation rate in the U.S?
b) Based on the CIRP, do you find an arbitrage opportunity? If so, assuming you can borrow 10,000 SKR or equivalent amount of dollars, please show your steps to arbitrage and compute your profit
c) At what forward rate, there will be no arbitrage?
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Crypto Spotlight Series Ripple
Authors: Nott U.r. Keys
1st Edition
979-8853049147
