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a bank can borrow or lend LIBOR. suppose that the six- month rate is 2% and the nine- month rate is 3%. The rate that

a bank can borrow or lend LIBOR. suppose that the six- month rate is 2% and the nine- month rate is 3%. The rate that can be locked in for the period between six months and nine months using an FRA is 4%. All rates are continuously compounded.

a). What is the forward rate between 6-month and 9 month?

b). What arbitrage opportunities are open to the bank?

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