Question

A bank can borrow or lend at LIBOR. Suppose that the six-month rate is 4% and the nine-month rate is 5%. The rate that can be locked in for the period between six months and nine months using an FRA is 6.5%. What arbitrage opportunities are open to the bank?

Answer 1

Answer: Interest rate from Banks

Explanation: The Opportunities open to the bank areas follows-1.Customers Visiting the bank for loans 2. This will encourage retained earnings for the bank. 3. The interest rate will increase the bank equities on the stock exchange market. 4. This will attract investment opportunities in other sectors for the bank.