A bank can borrow or lend at LIBOR. The two-month LIBOR rate is 0.28% per annum with
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A bank can borrow or lend at LIBOR. The two-month LIBOR rate is 0.28% per annum with continuous compounding. Assuming that interest rates cannot be negative, what is the arbitrage opportunity if the three-month LIBOR rate is 0.1% per year with continu- ous compounding. How low can the three-month LIBOR rate become without an arbitrage opportunity being created?
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