What is the no-arbitrage one-year forward rate

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1. You are a British-based corporate controller with $1.386 Billion invest. The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money? Show the steps and calculate the profit.

2. The €/$ spot exchange rate is $1.50/€ and the 120 day forward exchange rate is 1.45/€. If the $ and € interest rates are 2.446% and 1.892% respectively, what is the forward premium or discount?

3. Suppose you observe a spot exchange rate of $2.0671/£ and a 3 mo. forward rate of $2.0317/£. If interest rates are 5.375 percent APR in the U.S. and 2.148 percent APR in the U.K., what is the no-arbitrage 1-year forward rate?

Reference no: EM131983920

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