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Usd-sterling spot and forward exchange rates

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Reference no: EM132535368

Suppose that USD/sterling spot and forward exchange rates are as follows:

Spot 1.5580

90-day forward 1.5556

180-day forward 1.5518

What opportunities are open to an arbitrageur in the following situations?

(a) A 180-day European call option to buy £1 for $1.42 costs 2 cents.

(b) A 90-day European put option to sell £1 for $1.49 costs 2 cents.

Reference no: EM132535368

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