Question: Using the information in Table determine whether the three month forward

Using the information in Table, determine whether the three-month forward rate on euros is fair if the annualized yield for risk-free borrowing over the next three months is 8% in Europe and 5% in the United States. If the price is not fair, how could you capitalize on the arbitrage opportunity? What is the potential profit? Assume monthly compounding for borrowing and lending.

  • CreatedMarch 26, 2015
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