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The two-month interest rates in UK and the United States are, respectively, 4% and 2% per annum with continuous compounding. The spot price of the
- The two-month interest rates in UK and the United States are, respectively, 4% and 2% per annum with continuous compounding. The spot price of the British pound is $1.30.
- What is the theoretical two-month futures price of the British pound?
- If the futures price of the British pound for a contract deliverable in two months is $1.25.What arbitrage opportunities does this create? Describe your arbitrage strategy in detail.
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