Using the information in table 232 determine whether the, Ask an Expert

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Using the information in Table 23.2, determine whether the three-month forward rate on euros is fair if the annualized yield for risk-free borrowing over the next three months is 8 percent in Europe and 5 percent in the United States. If the price is not fair, how could you capitalize on the arbitrage opportunity? What is the potential profit? Assume monthly compounding for borrowing and lending.

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