Consider a one-year forward contract on GBP/USD. What is one-year forward ex-change rate?
Question 2. Derivatives. Share ForwardSuppose that the current price of Stock ABC is $30 and the one-year interest rate is 3%.(a) What is the one-year forward price of Stock ABC?(b) You observe that the one-year forward on this stock is currently trading on the marketat $33? Is there an arbitrage opportunity?
Question 3. Derivatives. Currency Forward (if time allows, otherwise, in thenext tutorial)Assume that the GBP/USD spot exchange rate is 1.30 (i.e.£1 can be converted into $1.30).The one-year interest rates in the UK and in the US are 1% and 1.8%, respectively.
(a) Consider a one-year forward contract on GBP/USD. What is one-year forward ex-change rate?
(b) Assume now, that the one-year forward exchange rate is 1.33. How could one exploitthe arbitrage opportunity here?2