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An investment bank can borrow or lend at LIBOR. Suppose that the 6-month rate is 5% and the 12-month rate is 8%. The rate that
An investment bank can borrow or lend at LIBOR. Suppose that the 6-month rate is 5% and the 12-month rate is 8%. The rate that can be locked in for the period between 6 months and 12 months using an FRA is 7%. What arbitrage opportunities are open to the bank? All rates are continuously compounded
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