Identify the appropriate arbitrage opportunity

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Reference no: EM131967029

1. The interest rate in Great Britain is 5.0 percent per year and the interest rate in the USA is 6.0 percent. If the spot exchange rate is 1.3 dollars per pound, what is the price of a 11 month forward contract to buy the British pound?

2. Suppose the current stock price is $100, the exercise price is $100, the annually compounded interest rate is 5%, the stock pays a $1 dividend in the next instant, and the quoted call price is $3.50 for a one-year option. Identify the appropriate arbitrage opportunity and show the appropriate arbitrage strategy.

Reference no: EM131967029

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