CHAPTER+1+Problem+Solutions - Sterling<= 1.57...

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1.27 (a) 180-day Forward Price = 1.6018 $ Effective Cost of Sterling if we buy the Call and exercise it is 1.57+ 0.02 = 1.59$ Arbitrage Profit/loss
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Unformatted text preview: Sterling <= 1.57 Sterling> 1.57 BUY CALL 0 – 0.02 S T – 1.57 – 0.02 SELL FORWARD 1.6018 - S T 1.6018 - S T 1.5818 - S T > 0 0.0118> 0...
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