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Question 3: The spot rate of EUR/USD is 1.3102 and the one year forward rate is 1.2851. The Euro interest rate is 6% p.a. while

Question 3: The spot rate of EUR/USD is 1.3102 and the one year forward rate is 1.2851. The Euro interest rate is 6% p.a. while the US interest rate is 3% p.a. Is there an arbitrage opportunity and if so, write down the steps you would take to make a costless profit.

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