Assume the interest rate on pounds sterling and euro

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Reference no: EM131064744

Assume the interest rate is 7% on pounds sterling and 16% on Euro. If the Pound is selling at a one-year forward premium of 8% against the Euro, which one of the followings is correct?

A. The arbitrage cash flow will be from U.K to EU

B. The arbitrage cash flow will be from EU to U.K

C. The arbitrage cash flow could be in either direction

Reference no: EM131064744

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