Cross-exchange rate to verify the triangular arbitrage

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Reference no: EM131880978

1. When you use the cross-exchange rate to verify the triangular arbitrage, how do you determine which currency is overpriced?

2. Suppose you observe a spot exchange rate of $1.50/euro. If the interests rates are 5% APR in a he US and 3% APR in the euro zone, what is the no arbitrage 1-year forward rate.

3. If the annual inflation rate is 5.5% in the US 4% in the U.K. Forecast how the exchange rate will move in the following year.

Reference no: EM131880978

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