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Suppose that the current spot exchange rate is €0.8210/$ and the three-month forward exchange rate is €0.7895/$. The three-month interest rate is 6 percent per annum in the United States and 8 percent per annum in France. Assume that you can borrow up to $1,000,000 or €821,000.

There is no arbitrage opportunity.

Arbitrage can generate a net profit around $45,697.

Arbitrage can generate a net profit around €36,077.

Both B) and C)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92404189

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