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Situation to make riskless profits

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Suppose the 12-month forward price of the euro in terms of dollars is 0.97 dollars per euro. Suppose the spot price of of the euro in terms of dollars is 1.0. Next, suppose that currently the annual interest rate on dollar deposits is 4%, while the interest rate on a comparable euro deposit is 5%. There are no transactions costs. Is there an arbitrage opportunity here? If so, explain exactly how you would take advantage of this situation to make riskless profits.

Reference no: EM131396129

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