What should the percentage pound annual forward premium

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Terry is a trader who sees the following quotes:

Spot: $ 1.2000/£

Dollar interest rate is 1.50% per year

Pound interest rate is 3% per year

Forward exchange rate a year from now: unknown

What should the percentage pound annual forward premium/discount be for there to be no arbitrage opportunity for Terry? (you must show your work to get credit/partial credit and clearly state whether it is at a percentage discount or premium) (answer should require one page maximum)

Reference no: EM132491297

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