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Assume that annual interest rates are 4 percent in the United States and 3 percent in...

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Finance

Assume that annual interest rates are 4 percent in the UnitedStates and 3 percent in Turkey. An FI can borrow (by issuing CDs)or lend (by purchasing CDs) at these rates. The spot rate is$0.6584/Turkish lira (TL).

a. If the forward rate is $0.6735/TL, how could the bankarbitrage using a sum of $7 million? What is the spread earned? (Donot round intermediate calculations. Round your answer to 4 decimalplaces. (e.g., 32.1616))

b. At what forward rate is this arbitrage eliminated? (Do notround intermediate calculations. Round your answer to 5 decimalplaces. (e.g., 32.16161))

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Assume that annual interest rates are 4 percent in the UnitedStates and 3 percent in Turkey. An FI can borrow (by issuing CDs)or lend (by purchasing CDs) at these rates. The spot rate is$0.6584/Turkish lira (TL).a. If the forward rate is $0.6735/TL, how could the bankarbitrage using a sum of $7 million? What is the spread earned? (Donot round intermediate calculations. Round your answer to 4 decimalplaces. (e.g., 32.1616))b. At what forward rate is this arbitrage eliminated? (Do notround intermediate calculations. Round your answer to 5 decimalplaces. (e.g., 32.16161))

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