Suppose the spot and 6-month forward rates on the Swedish krona are SKr10.7917/ and SKr12.00/, respectively. The

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Suppose the spot and 6-month forward rates on the Swedish krona are SKr10.7917/£ and SKr12.00/£, respectively. The annual risk-free rate in the United Kingdom is 2.5 per cent, and the annual risk-free rate in Sweden is 1.13 per cent.

(a) Is there an arbitrage opportunity here? If so, how would you exploit it?

(b) What must the 6-month forward rate be to prevent arbitrage?

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Corporate Finance

ISBN: 9780077173630

3rd Edition

Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe

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Question Posted: Feb 22, 2024 03:03 AM

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Suppose the spot and 6-month forward rates on the Swedish krona are SKr10.7917/ and SKr12.00/, respectively. The

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Corporate Finance

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