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a) Given the following information, what should be the quotes for USD/JPY 3-month forward rates? (Assume the interest rates are periodically compounded.) Bid Ask Spot

a) Given the following information, what should be the quotes for USD/JPY 3-month forward rates? (Assume the interest rates are periodically compounded.)

Bid Ask

Spot rate USD/JPY: 104.35 104.45

JPY 3-month Libor = 0.25% 0.75%

US 3-month Libor = 0.40% 0.80%

b) If the current forward rate quotes for USD/JPY are 103.95 (bid) and 104.00 (ask), could you find any arbitrage opportunities?Please explain.

c) If so, how will you conduct the arbitrage? What are your arbitrage profits?

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