The current exchange rate from dollars to euros is 1.18 ($/Euro). The current dollar denominated continuously compounded

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The current exchange rate from dollars to euros is 1.18 ($/Euro). The current dollar denominated continuously compounded risk-free rate 4% and you observe the current euro forward contract with two years to maturity to have a forward price of $1.20.

What is the implied euro denominated risk-free rate?
If the actual euro denominated risk-free rate is 0%, how would you make an arbitrage opportunity?
What is the arbitrage profit from your strategy in part b?

Posted Date: May 17, 2024 04:12 PM

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The current exchange rate from dollars to euros is 1.18 ($/Euro). The current dollar denominated continuously compounded

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