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The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, if you
The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, if you observe the 2-year forward rate is 1.36$/euro, you would set up the arbitrage position by short the forward, ____ $ risk-free asset, _____ $ at current spot rate, _____ Euro risk-free asset.
long, buy, short
long, sell, long
short, buy, long
short, sell, long
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