Question: A bank can borrow or lend at LIBOR. The two - month LIBOR rate is 0.28% per annum with continuous compounding. Assuming that interest rates

A bank can borrow or lend at LIBOR. The two - 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 three - month LIBOR ra te is 0.1 % per year with continuous compounding. How low can the three - month LIBOR rate become without an arbit rage opportunity being created?

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