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The risk-free rate in the US is 5% and the UK risk-free rate is 8%. The spot quote is $80/ while the one year forward
- The risk-free rate in the US is 5% and the UK risk-free rate is 8%. The spot quote is $80/ while the one year forward quote is $78/. You can borrow either $1,000,000 or 555,556. According to IRP, is the forward quote correct? If not, what should it be?
If the forward quote is not correct, lay out the steps to implement an arbitrage.
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