# Question: Suppose the spot and six month forward rates on the Norwegian

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?

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?

## Answer to relevant Questions

You observe that the inflation rate in the United States is 2.6 percent per year and that T-bills currently yield 3.4 percent annually. What do you estimate the inflation rate to be in:a. Australia, if short-term Australian ...What is the payback period for the following set of cash flows?Year Cash Flow0...... -$5,5001...... 1,3002...... 1,5003...... 1,9004...... 1,400A project that provides annual cash flows of $17,300 for nine years costs $79,000 today. Is this a good project if the required return is 8 percent? What if it’s 20 percent? At what discount rate would you be indifferent ...An investment has an installed cost of $527,800. The cash flows over the four-year life of the investment are projected to be $221,850, $238,450, $205,110, and $153,820. If the discount rate is zero, what is the NPV? If the ...A proposed new project has projected sales of $125,000, costs of $59,000, and depreciation of $12,800. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches described in the chapter ...Post your question