The interest rates in the UK and the United States are, respectively, (4 %) and (6 %)

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The interest rates in the UK and the United States are, respectively, $4 \%$ and $6 \%$ per annum compounded continuously. The spot price of the UK pound is $\$ 1.6$. The forward price for a UK pound deliverable in 6 months is $\$ 2.0$.

(a) Determine if an arbitrage opportunity exists.

(b) If there is such an opportunity, describe it in detail, showing the risk-free profit.

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Investment Science

ISBN: 9780199740086

2nd Edition

Authors: David G. Luenberger

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Question Posted: Apr 20, 2024 12:00 PM

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The interest rates in the UK and the United States are, respectively, (4 %) and (6 %)

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Investment Science

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