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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

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.

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