The spot MXN/¥ FX rate is S0(MXN/¥) = MXN0.100/¥. The ¥ interest rate is 3.0% per annum and the MXN interest rate is 5.0% per annum, both quoted with annual compounding. Suppose that you observe a 9-month forward price of F0,0.75 = MXN0.101/¥. How would you make an arbitrage profit? Describe the steps and calculate the profit.
The question belongs to Finance and it discusses about making arbitrate profit by exchanging Mexican Peso with Yen or Yuan.
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