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How would you make an arbitrage profit

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Reference no: EM132619252

Question - The spot MXN/JPY FX rate is S0(MXN/JPY) = MXN0.100/JPY. The JPY interest rate is 3.0% per annum and the MXN interest rate is 5.0% per annum, both quoted with annual compounding. Suppose that you observe a 9-month forward price of F0,0.75 = MXN0.101/JPY. How would you make an arbitrage profit? Describe the steps and calculate the profit. (9 months = 0.75 years).

Reference no: EM132619252

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