Suppose that USD-sterling spot and forward exchange rates are as follows: Spot..........................................1.5580 90-day forward.............................1.5556 180-day forward...........................1.5518 What

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Suppose that USD-sterling spot and forward exchange rates are as follows:

Spot..........................................1.5580

90-day forward.............................1.5556

180-day forward...........................1.5518

What opportunities are open to an arbitrageur in the following situations?

(a) A 180-day European call option to buy £1 for $1.52 costs 2 cents.

(b) A 90-day European put option to sell £1 for $1.59 costs 2 cents.

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Options Futures and Other Derivatives

ISBN: 978-0134472089

10th edition

Authors: John C. Hull

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Question Posted: Feb 12, 2018 11:05 AM

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Suppose that USD-sterling spot and forward exchange rates are as follows: Spot..........................................1.5580 90-day forward.............................1.5556 180-day forward...........................1.5518 What

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a The arbitrageur buys a 180day call option and takes a short position in a 180day forward contract ...View the full answer

Options Futures and Other Derivatives

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