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  3. the spot exchange rate is $1.40 per pound. the one

The spot exchange rate is $1.40 per pound. The one year ahead forward rate is...

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Finance

The spot exchange rate is $1.40 per pound. The one year ahead forward rate is $1.38 per pound. If the interest rates are 1% in US and 3% in UK

What will be the profit earned by an investor who borrows in dollars and invests for one year in a pound denominated bond? Assume the investor uses the forward contract to convert the pounds back to dollars at the forward rate.

What is the one year ahead forward rate that will eliminate all opportunities for arbitrage profits?

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