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Math Help - Forward Contract

  1. #1
    Member
    Joined
    Jul 2011
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    80

    Forward Contract

    Write a forward contract for the following money making opportunity:

    Suppose that dealer A in New York offers to buy British pounds a year from now at a rate dA = $1.58 to a pound, while dealer B in London would sell British pounds immediately at a rate dB = $1.60 to a pound. Suppose that dollars can be borrowed at an annual rate of 4%, and British pounds can be invested in a bank account at 6%.

    Any help would be appreciated!
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  2. #2
    Newbie
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    Feb 2014
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    Alabama
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    Re: Forward Contract

    I'm not really sure what the question wants. For an outsider, this situation is an arbitrage opportunity.
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