The spot exchange rate for US dollars is 0.93. The U.S. interest rate is 3.0% per year, and the British interest rate is 2% per year (both continuous-time compounding). A futures contract on the exchange rate for the US dollar expires in 100 days

(a) Find and explain the appropriate futures price.

(b) Suppose the actual futures price is 0.912. Do there exist any arbitrage opportunities? If the answer is a yes, how could an arbitrageur take advantage of the mispricing? Show the details of possible strategies and compute the annualised rate of returns of such strategies.

(c) Due to sudden serious melt down in the financial markets, the authorities restrict the capital flows and introduce capital flow controls such that all exchange rate transactions will take 3 days to finalise the transactions with a capped volume. Discuss in principle how your answers could change in parts (a) and (b) and how you could determine suitable futures prices for above exchange rates.