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QUESTION
suppose that the current spot exchange rate is 0.8210/$ and the three-month forward exchange rate is 0.7895/$. The three-month interest rate in 6%...
suppose that the current spot exchange rate is €0.8210/$ and the three-month forward exchange rate is €0.7895/$. The three-month interest rate in 6% per annum in the US and 8% per annum in france. Assume that you can borrow up to $1,000.000 or €821,000
a) there is no arbitrage
b) arbitrage can generate a net profit around $45,697
c) arbitrage can generate a net profit around €36,077
d) b and c
