Question: Consider a call option on the U.S. dollar written in Indian rupees (). The current spot exchange rate is 70/$, the Indian interest rate

Consider a call option on the U.S. dollar written in Indian rupees (₹). The current spot exchange rate is ₹ 70/$, the Indian interest rate is 7 percent, and the U.S. interest rate is 5 percent (both annual compounding). If you observe a one-year at-the-money call option trading for ₹ 1.2/$, what transaction would an arbitrageur pursue? (Assume that the call option is European.)

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