Question
Which of the following is true if spot $/ bid-ask exchange rates are 1.68-1.70 $/, 1- year forward bid-ask exchange rates are 1.62-1.64$/, the borrowing
Which of the following is true if spot $/ bid-ask exchange rates are 1.68-1.70 $/, 1- year forward bid-ask exchange rates are 1.62-1.64$/, the borrowing rate in the U.S. is 4%, the investment rate in the U.S. is 3%, the borrowing rate in U.K. is 5%, and the investment rate in the U.K. is 4%
a) Arbitrage is not possible b) Arbitrage is possible and arbitrage strategy involves investing in s. c) Arbitrage is possible and arbitrage strategy involves borrowing in s. d) Arbitrage is possible; however, there is not enough information to pick one of the answers above.
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