Suppose the spot and six-month forward rates on the Norwegian krone are Kr 7.87 and Kr 7.97,
Question:
Suppose the spot and six-month forward rates on the Norwegian krone are Kr 7.87 and Kr 7.97, respectively. The annual risk-free rate in the United States is 3 percent, and the annual risk-free rate in Norway is 5 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 7871 05 03 12 F 180 Kr 79483 Sinc...View the full answer
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Related Book For
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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