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[Total: 100 marks) Question 5. Answer ALL parts. (a) Define arbitrage and critically analyse its...

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[Total: 100 marks) Question 5. Answer ALL parts. (a) Define arbitrage and critically analyse its role in the following pricing contexts: (i) dual-listed securities; (ii) cross exchange rate arbitrage; and (iii) the pricing of a forward contract on a stock. [40 marks) (b) Explain the pricing of currency forward contracts and demonstrate the connection with money market hedging (30 marks) (c) Explain six characteristics of the foreign exchange market as revealed by the Bank for International Settlements (BIS) surveys. (30 marks [Total: 100 marks)

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