Arbitrage with forward and option contracts

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Reference no: EM1333318

Suppose that the Euro-USD spot and forward exchange rates are as follows:

Spot 1.34
90-day forward 1.3380
180-day forward 1.3348

What opportunity is open to an arbitrageur when a 180-day European call option to buy 1 Euro for $1.3083 costs $0.02 per Euro? Assume the size of forward and options contracts to be 1,000,000 Euros each. Ignore borrowing costs.

Reference no: EM1333318

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