What is the arbitrage-free nine month forward

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Reference no: EM133061347

If the spot exchange rate on the Hong Kong dollar (HKD) in Japanese yen (JPY) is 14 JPY/HKD (JPY per 1 HKD). The Hong King risk free rate is 0.75% and the Japanese risk-free rate is 0.50%.

-What is the arbitrage-free nine month forward exchange rate in JPY/HKD?

-If the actual 9-month forward contract is higher than the forward you calculated, what arbitrage transactions will take advantage of the mispricing?

-What limits to arbitrage exist to prevent the mispricing from being fully exploited?

Reference no: EM133061347

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