Problem:
Suppose the spot and six-month forward rates on the Norwegian krone are Kr6.36 and Kr6.56, respectively. The annual risk-free rate in the United States is 4.5 percent, and the annual risk-free rate in Norway is 7 percent.
Required:
Question 1: What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?
Note: Explain in detail.