Suppose the spot and six-month forward rates on the Norwegian krone are Kr 9.14 and Kr 9.27,
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Suppose the spot and six-month forward rates on the Norwegian krone are Kr 9.14 and Kr 9.27, respectively. The annual riskfree 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 Yes there is an arbit rage opportunity here The investor can exploit i...View the full answer
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