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The spot rate for the f is 1.33 US$ per E. The six-month interest rate in the US is 3% and the six-month interest rate

The spot rate for the f is 1.33 US$ per E. The six-month interest rate in the US is 3% and the six-month interest rate in the UK is 2%. 



What should be the six-month forward rate to ensure no arbitrage profits are available? The no-arbitrage condition holds by creating and comparing the returns on alternative investments available to an investor based in the UK. Suppose the interest rate on the US$ changes to 4%. Using the forward rate you have estimated, the transactions that will yield arbitrate profits and calculate the arbitrage profits?

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