Suppose the spot CAD/GBP exchange rate is 1.62, the 1-year continuously compounded rate in Canada is 5%.

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Suppose the spot CAD/GBP exchange rate is 1.62, the 1-year continuously compounded rate in Canada is 5%. Suppose the 1-year futures exchange rate is 1.6671

(a) What is the interest rate prevailing in the UK? (2 marks)

(b) What is the 6-month futures exchange rate? (2 marks)

(c) Suppose the 6-month futures exchange rate is 1.63. Is there an arbitrage? If so, show how you can make a risk-free profit with a loan of 1 million. (3 marks)

Posted Date: May 10, 2024 04:11 AM

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Suppose the spot CAD/GBP exchange rate is 1.62, the 1-year continuously compounded rate in Canada is 5%.

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Interest Rates and Arbitrage in Forex Market Lets analyze the foreign exchange scenario Given Spot CADGBP exchange rate 162 Canadian dollars per British pound Canadian interest rate 5 continuously com... View the full answer

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