Suppose the spot and six-month forward rates on the won are won 950. 18 and won 956.85,
Question:
Suppose the spot and six-month forward rates on the won are won 950. 18 and won 956.85, 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: 9780073405131
6th Edition
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan
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