What must forward rate be to prevent arbitrage

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Question: Exchange Rates and Arbitrage. Suppose the spot and six-month forward rates on the South Korean won are SKW 1,108.27 and SKW 1,110.32, respectively. The annual risk-free rate in the United States is 2.5 percent, and the annual risk-free rate in South Korea is 3.1 percent.

a. Is there an arbitrage opportunity here? If so, how would you exploit it?

b. What must the six-month forward rate be to prevent arbitrage?

Reference no: EM131733822

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