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2) Suppose that the 1-year interest rates in Germany and the United States are 3% and 4% (continuously compounded). The spot exchange rate between the

2) Suppose that the 1-year interest rates in Germany and the United States are 3% and 4% (continuously compounded). The spot exchange rate between the euro (EUR) and the US dollar (USD) is 1.15 USD per EUR. Suppose that the 1-year forward exchange rate is 1.1550. How can an arbitrageur generate arbitrage profits? Explain in detail.

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