What must spot rate be to eliminate arbitrage opportunities

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Reference no: EM131009625

A currency dealer has good credit and can borrow either $1,000,000 or €800,000 a year. The one year inflation rate in the US is π$=2.5% and in the euro zone the one year inflation rate is π€=5.5%, the one year forward exchange rate is $1.20=€1.00, what must the spot rate be to eliminate arbitrage opportunities?

Reference no: EM131009625

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