Suppose the spot and six-month forward rates on the Norwegian krone are Kr 6.95 and Kr 7.03,
Question:
Suppose the spot and six-month forward rates on the Norwegian krone are Kr 6.95 and Kr 7.03, 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?
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a If IRP holds then F 180 Kr 6951 057 038 12 F 180 Kr 70157 S...View the full answer
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Related Book For 
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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