Suppose the Spot and Six-Month Forward Rates on the Norwegian

question 31

Multiple Choice

Suppose the spot and six-month forward rates on the Norwegian krone are Kr6.36 and Kr6.56,respectively.The annual risk-free rate in the United States is 4.5 percent,and the annual risk-free rate in Norway is 7 percent.What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?

• A)Kr6.4390
• B)Kr6.4872
• C)Kr6.5103
• D)Kr6.5174
• E)Kr6.6067

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