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U.S Treasuries have an interest rate of 2% annualized. French Sovereign Debt has an interest rate of 5% annualized. The Euro currently trades at $1.35. What would be the expected 90 day forward exchange rate between the Euro and the dollar? You have checked with your FX dealer and the 90 day forward on the Euro is $1.40. Do you have an arbitrage opportunity? Should you buy or sell Euros?

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