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What is the value of the arbitrage opportunity

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Reference no: EM132829658

Question - Consider a forward contract on pound sterling. Suppose the spot exchange rate is $2.40/£. Suppose also that the five-month interest rate on dollars is 2% while the five-month interest rate on pounds is 4%, both in continuously compounded terms. If the actual delivery price for the forward contract is $2.50, what is the value of the arbitrage opportunity on a five-month contract for £1?

A) $0.1239

B) $0.1298

C) $0.1199

D) $0.1593

Reference no: EM132829658

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