Question: a) Suppose the two year and three year zero coupon rates are 4.32% and 4.54% respectively (all rates are annualized), what should be the market

a) Suppose the two year and three year zero coupon rates are 4.32% and 4.54% respectively (all rates are annualized), what should be the market quote for the 24*36 FRA.

b) In the above scenario, if the quoted 24*36 FRA rate is 4.5%, is there an arbitrage opportunity? If yes, how will a trader exploit this opportunity (provide all the details)? If no, explain your reasoning.

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