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Calculate the amount of profit

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Reference no: EM132434440

Question 1: If three-month forward exchange rate of one pound to the US dollar (i.e. F1/4($/£)) is $1.6025 and three-month expected spot exchange rate of one pound to the US dollar (i.e. S1/4($/£)) is $1.6125, is there an arbitrage profit opportunity? Explain your answer.

Question 2: If there is an arbitrage profit opportunity, then describe the strategy that you will use to realise the profit and calculate the amount of profit that you will realise on a transaction of £250,000.

Reference no: EM132434440

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