Write out the equation for the theoretical futures price

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The 6-month interest rates in Canada is 0.70% and in the US it is 1.10% per annum with continuous compounding. Assume the USD/CAD spot price is 0.7870 (i.e. one CAD buys $0.7870). 

Suppose the futures price of a contract deliverable in 6 months is 0.7850. Assume the US is the home currency.

Write out the equation for the theoretical futures price. 

Do these quotes offer an arbitrage opportunity? If so, explain what strategies would be used by an arbitrageur.

Reference no: EM133120131

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