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Suppose the domestic currency is the Kenya shilling and the foreign currency is the US...

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Finance

Suppose the domestic currency is the Kenya shilling and the foreign currency is the US Dollar. Let the spot exchange rate be sh85 per $, the Kenyan interest rate be 10% and the US interest rate be 4%. These rates are continuously compounded and assumed to be fixed over the life of the contract.

Calculate the forward price of a six month contract

Show the arbitrage profit if the forward price is both high and low than the calculated.

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