John Baker
New member
As a trader for a Canadian financial institution, you can borrow and lend Canadian dollars (CAD) at 3%. However, as a non-American institution, you can borrow USD at the rate of 1.8% and deposit USD at 1.2%. Currently the exchange rate for these two currencies is 0.8 USD/CAD. The exchange rate on a six-month forward contract is 0.79 USD/CAD.
Can you arbitrage from this exchange rate on the forward contract? If so, please explain carefully how you would trade to take advantage of the arbitrage opportunities. (Whichever currency you borrow, please borrow 1,000 units of that currency.)
Can you arbitrage from this exchange rate on the forward contract? If so, please explain carefully how you would trade to take advantage of the arbitrage opportunities. (Whichever currency you borrow, please borrow 1,000 units of that currency.)