A bank can borrow or lend at LIBOR. The 2-month LIBOR rate is 0.28% per...
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A bank can borrow or lend at LIBOR. The 2-month LIBOR rate is 0.28% per annum with continuous compounding. Assuming that interest rates cannot be negative, what is the arbitrage opportunity if the 3-month LIBOR rate is 0.1% per year with continuous compounding. How low can the 3-month LIBOR rate become without an arbitrage opportunity being created?
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