Make money with zero initial investment and no risk

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Reference no: EM132014431

Suppose the spot $/Yen exchange rate is 0.008, the 1-year continuously compounded dollard enominated rate is 5% and the 1-year continuously compounded yen-denominated rate is 1%. Suppose the 1-year forward exchange rate is 0.0084. Explain precisely the transactions you could use (being careful about currency of denomination) to make money with zero initial investment and no risk. What is such a strategy being referred to in the markets?

Reference no: EM132014431

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