Suppose the spot exchange rate is 0.5491 pounds per U.S.dollar,while the risk-free borrowing rates are 4% in Britain and 3% in the United States.If the current forward exchange rate is also 0.5491 pounds per dollar,what opportunity exists?
A) Arbitrage by borrowing in Britain today, and selling pounds forward.
B) Arbitrage by borrowing in Britain today, and selling dollars forward.
C) Arbitrage by borrowing in the United States today, and selling pounds forward.
D) Arbitrage by borrowing in the United States today and selling dollars forward.
Correct Answer:
Verified
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