The annual risk-free rate with continuous compounding in Singapore and the USA is 2% and 10%, respectively. The spot exchange-rate of US dollars (USD) and Singaporean dollars (SGD) is 0.61 USD/SGD. You are based in the USA and a futures contract on this currency (exchange-rate) for delivery in a year has a price of (a) 0.68 USD/SGD and (b) 0.68 USD/SGD. For each case, discuss if there are arbitrage opportunities and if so, compute the arbitrage profit

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.