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Assume the dollar per euro spot rate is .921 and the continuously compounded dollar and euro interest rates are 3 and 5 percent respectively. 1

Assume the dollar per euro spot rate is .921 and the continuously compounded dollar and euro interest rates are 3 and 5 percent respectively.

1 year dollar per euro forward rate is .904;

1 year dollar per euro forward rate is .901, clearly explain the arbitrage opportunity for each case.

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