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12. suppose that the 2-year interest rates in the US(foreign) and KRW (domestic) are 1.5% and 3%, respectively. The current spot exchange rate is 1150 KRW per USD. The 2-year foward exchange rate should be F0 = 1150e^2(3%-1.5%) = 1185 Explain what strategy can be considered to have riskless profit if F0 is less or greater that 1185 Case 1 : F0 = 1200 Case 2 : F0 = 1130

12. suppose that the 2-year interest rates in the US(foreign) and KRW (domestic) are 1.5% and 3%, respectively. The current spot exchange rate is 1150 KRW per USD. The 2-year foward exchange rate should be F0 = 1150e^2(3%-1.5%) = 1185 Explain what strategy can be considered to have riskless profit if F0 is less or greater that 1185 Case 1 : F0 = 1200 Case 2 : F0 = 1130

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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12.

suppose that the 2-year interest rates in the US(foreign) and KRW (domestic) are 1.5% and 3%, respectively.

The current spot exchange rate is 1150 KRW per USD.

The 2-year foward exchange rate should be F0 = 1150e^2(3%-1.5%) = 1185

Explain what strategy can be considered to have riskless profit if F0 is less or greater that 1185

Case 1 : F0 = 1200

Case 2 : F0 = 1130

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