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Work Problem: Exchange Rate Interest Rates Bid Ask Borrowing Lending S($/) $1.1253 $1.1258 i$ F360($/) $1.1366 $1.1390 i 3.55% 3.10% a. Using an arbitrage portfolio,
Work Problem: Exchange Rate Interest Rates Bid Ask Borrowing Lending S($/) $1.1253 $1.1258 i$ F360($/) $1.1366 $1.1390 i 3.55% 3.10% a. Using an arbitrage portfolio, calculate the no arbitrage borrowing rate in the US given the foreign exchange markets and international bond markets above. [ Select] b. Using another arbitrage portfolio, how much arbitrage profits can you create when the borrowing rate is 4% instead and you are allowed to borrow up to $1,000,000 or 840,336? [Select ]
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