Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.81 and SKW
Question:
Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.81 and SKW 1,315.16, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in South Korea is 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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Related Book For
Essentials Of Corporate Finance
ISBN: 9780073382463
7th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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