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Assume that the spot exchange rate between the Aussie Dollar (AUD) and U.S. dollars is 1.0404 (USD per AUD). Interest rates in the U.S. and

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Assume that the spot exchange rate between the Aussie Dollar (AUD) and U.S. dollars is 1.0404 (USD per AUD). Interest rates in the U.S. and Australia are 0.25% per annum and -0.1% per annum respectively. The quoted 3-month forward exchange rate is USD 1.0500 per AUD. The equilibrium 3- month forward AUD/USD rate is 1.0413. Explain if there is any arbitrage opportunity, and if so, calculate the risk-free profit based on an initial sum of USD 1,000,000

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