Suppose the spot and six-month forward rates on the Norwegian krone are Kr6.36 and Kr6.56, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in Norway is 7 percent. What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?
A) Kr6.4233
B) Kr6.4872
C) Kr6.5103
D) Kr6.5174
E) Kr6.6067
Correct Answer:
Verified
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