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The current USD/CAD (U.S. dollars per Canadian dollar) exchange rate is 0.70 and the 3month forward exchange rate is 0.7012. Suppose the U.S. Treasury 3month
The current USD/CAD (U.S. dollars per Canadian dollar) exchange rate is 0.70 and the 3month forward exchange rate is 0.7012. Suppose the U.S. Treasury 3month rate is 0.1% and the Canadian Treasury 3month rate is 0.25%.
1. Determine whether or not there exists an arbitrage opportunity in this situation. Must show work to get credit
2. If you think there is a mispricing between USD and CAD, how would you try to take advantage of it? Must show work to get credit.
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