Suppose the spot and six-month forward rates on the Norwegian krone are Kr 9.14 and Kr 9.27, respectively. The annual riskfree rate in the United States is 3.8 percent, and the annual risk-free rate in Norway is 5.7 percent. a. Is there an arbitrage opportunity here? If so, how would you exploit it? b. What must the six-month forward rate be to prevent arbitrage?
