Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.78 and Kr 5.86,

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Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.78 and Kr 5.86, respectively. The annual risk-free rate in the United States is 3.8 percent, and the annual risk-free rate in Norway is 5.7 percent.

a. Is there an arbitrage opportunity here? If so, how would you exploit it?

b. What must the six-month forward rate be to prevent arbitrage?

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Fundamentals of corporate finance

ISBN: 978-0078034633

10th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Question Posted: Mar 13, 2014 07:58 AM

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Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.78 and Kr 5.86,

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Input Area Spot on krone 578 Forward on krone 586 Risk...View the full answer

Fundamentals of corporate finance

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