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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
10.       Exchange Rates and Arbitrage   Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.78 and Kr 5.86, respectively. The annual risk-free rate in the United States is 3.8 percent, and the annual risk-free rate in Norway is 5.7 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?
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