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What would your profit be from cirp arbitrage

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Reference no: EM132251800

Question: 1. Today's (t=0) spot rate is, (x)=1.28 USD/GBP. Assume that r = 6% for GBP and r= 4% for USD, if the (1-year) forward rate is (f)=1.28 USD/GBP, according to the Covered Interest Rate Parity (CIRP), is the GBP underpriced or overpriced in the actual forward contract ?

2. Based on the information in the above question, if you can borrow 100,000 units in the synthetic forward position at t=0, what would your profit be from CIRP arbitrage(in USD)?

Reference no: EM132251800

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