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Suppose your broker give you the following information: Spot exchange rate (USD/EUR) = 1.1370 One year forward rate (USD/EUR) = 1.1405 One year USD interest

Suppose your broker give you the following information:

Spot exchange rate (USD/EUR) = 1.1370

One year forward rate (USD/EUR) = 1.1405

One year USD interest rate = 0.87%

One year Euro interest rate = 0.65%

a. Is there any violation of interest rate parity?

b. How would you take advantage of any arbitrage situation?

c. What is your profit?

d. Suggest an equilibrium value for the forward rate

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