redskins44

Thanks CP...i got the unit of foreign ccy. So to calculate the rate of return from this arbitrage, you take the (fwd price/spot price)-1? And is spot price what we got from step 2?
Can you please walk me through this question?
For example p.54 from text book. Euro trades at $1.0231, USD risk free is 4% and Euro risk free is 5%. 6 months forward contracts are quoted at $1.0225.
Indicate how you can earn a risk free profite and outline the steps.