3. (a) Can the forward discount be viewed as the cost of hedging an accounts receivable? Discuss. (20 marks) (b) Given t

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3. (a) Can the forward discount be viewed as the cost of hedging
an accounts receivable? Discuss. (20 marks)
(b) Given the following data on various currencies (including
some historical ones, namely BEF, DEM, NLG, ITL and FRF) for the
spot rate St, the forward rate Ft,T, the domestic interest rate
rt,T and the foreign interest rate r*t,T respectively),
are there any arbitrage opportunities? If so, how would you make a
risk-free profit? (40 marks)
(i) BEF/DEM 20.5 20.60 3.5% 2.5%
(ii) JPY/NLG 57.5 57.10 1.25% 3.0%
(iii) ITL/FRF 283.0 285.73 4.5% 3.5%
(iv) CHF/GBP 2.2 2.18 2.0% 3.0%