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Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.75 and Kr 5.90, respectively. The annual risk-free rate in the United States is 3.55 percent, and the annual risk-free rate in Norway is 5.25 percent.

Using the approximation, the six-month forward rate on the Norwegian krone would have to be Kr/$ to prevent arbitrage.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92268637

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