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A bank can borrow or lend at LIBOR. Suppose that the six-month rate is 5% and the nine-month rate is 6%. The rate that can

A bank can borrow or lend at LIBOR. Suppose that the six-month rate is 5% and the nine-month rate is 6%. The rate that can be locked in for the period between six months and nine months using an FRA is 7%. What arbitrage opportunities are open to the bank? All rates are continuously compounded.

EXPLAIN CLEARLY STEP BY STEP AND PROVIDE EXAMPLE CALCULATION TO SEE THE PROFIT FROM ARBITRAGE OPPORTUNITIES

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