Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.78 and Kr 5.86,
Question:
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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Input Area Spot on krone 578 Forward on krone 586 Risk...View the full answer
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Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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