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What is the no-arbitrage one-year forward rate

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Q1. Suppose you observe a spot exchange rate of $1.7/£. If interest rates are 4% in the US and 1.5 % in the UK, what is the no-arbitrage 1-year forward rate?

a. 1.62

b. 1.65

c. 1.78

d. 1.74

Q2. A businessman has just completed transactions in Italy and England. He is now holding €20000 and £150,000 and wants to convert to U.S. dollars.

His currency dealer provides this quotation:

USD/GBP 1.2500- 04

EUR/USD 0.8884- 0.8888

What are his proceeds from conversion?

a. 210072

b. 137737

c. 210002

d. 137729

Reference no: EM133028735

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