Suppose the spot and six-month forward rates on the Norwegian krone are NOK 5.78 and NOK 5.86,
Question:
Suppose the spot and six-month forward rates on the Norwegian krone are NOK 5.78 and NOK 5.86, respectively. The annual risk-free rate in Canada 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 5781 057 038 12 F 180 Kr 5834651626 ...View the full answer
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
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