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FUTURES&OPTIONS. DETAILED EXPLANATION NEEDED PLEASE You are working on a currency arbitrage desk. You look up exchange rates and interest rates for the USD versus

FUTURES&OPTIONS.

DETAILED EXPLANATION NEEDED PLEASEimage text in transcribed

You are working on a currency arbitrage desk. You look up exchange rates and interest rates for the USD versus the Canadian Dollar (CAD) and find the following: The current spot rate is 0.769 USD/CAD. The 10-month forward exchange rate is 0.713 USD/CAD (note: Canadian dollar futures contracts are 100,000 CAD each). The 10-month T-bill yield in the USA is 2.54% (assume this is continuously compounded and annualized) and the 10-month risk-free rate in Canada is 1.94% (also continuously compounded and annualized). What is the arbitrage trade, and what is your profit per futures contract

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