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Suppose the spot and forward rates on the Norwegian Krone are Kr. 6.18and Kr. 6.30 respectively. The annual risk-free rate in the United States is 5 percent and the annual risk-free rate in Norway is 8 percent.

i) Is there an arbitrage opportunity here? If so, how would you exploit it?

ii) What must be the 6-month forward rate to prevent arbitrage?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M941769

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