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tatuchka [14]
3 years ago
11

Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.79 and Kr 5.94, respectively. The annual risk-free

rate in the United States is 3.59 percent, and the annual risk-free rate in Norway is 5.29 percent. Using the approximation, the six-month forward rate on the Norwegian krone would have to be Kr/_____________$ to prevent arbitrage. (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.)
Business
1 answer:
BigorU [14]3 years ago
7 0

Answer:

the six-month forward rate on the Norwegian krone would have to be Kr/5.8392 $ to prevent arbitrage

Explanation:

The forward rate for no arbitration = Spot rate * ( [1+ difference in risk-free rate of 2 coutries] ^1/2)

= 5.79*(1+(5.29%-3.59%)^1/2) = 5.8392

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