Suppose the spot and 3-month forward rates on the brazilian, Ask an Expert

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Suppose the spot and 3-month forward rates on the Brazilian real (BRL) are $1 = BRL3.2573 and $1 = BRL3.3550, respectively. The annual risk-free rate in the US is 2.36%, & the annual risk-free rate in Brazil is 10.46%.

a. Is there an arbitrage opportunity here? If so, how would you exploit it if you can borrow up to BRL162,865 or $50,000?

b. What must the 3-month exchange rate between the dollar and the Brazilian real (BRL) be to prevent arbitrage?

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Financial Management, Finance

Category:- Financial Management
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