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With the information provided you should be able to (1) determine if there are arbitrage opportunities and (2) explain how those arbitrage opportunities can be

  1. With the information provided you should be able to (1) determine if there are arbitrage opportunities and (2) explain how those arbitrage opportunities can be exploited.
  2. The answers should be laid out clearly in numbered steps with simple sentences indicating:
    1. When the trade is happening
    2. If you are buying/selling
    3. If the action is taking place in the spot/forward market
    4. When will the action mature
    5. Show all cashflows and indicate the level of profits.
    6. If the steps are not clearly explained they will not be considered

Suppose you are a currency trade who specializes in the USDMXN pair. Right now, the spot price for USDMXN is trading at 22.4532, the 3-month forward is trading at 22.7154 and the 6-month forward is trading at 22.9458. You usually trade with three counterparties UBS, ANZ and Standard Chartered. They provide a daily report of the rates they are willing to take deposits or make loans at. The latest report looks like this:

As an example, this table can be read as: UBS is paying/charging a 0.2501% annual interest rate for a 3-month deposit or a 3-month loan in U.S. dollars, while they would be charging a 5.88% annual interest rate for a 6-month deposit or a 6-month loan in Mexican peso.

If arbitrage is possible, how much money do you stand to earn? Suppose that once you choose a bank all loans and all deposits must be done with the same entity. Also suppose that you can trade/invest 10 million USD. Use six decimal points in your calculations.

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