You are a hedge fund looking for arbitrage opportunities between the spot FX market and 3 month FX forwards and money markets. You observe the following quotes from market makers in these markets for AUD and NZD Bid Ask S(NZD/AUD) 1.0960 1.0982 F3M(NZD/AUD) 1.0888 1.0900 3m Lending Rate 3m Borrowing Rate NZD 0.48%pa 0.65%pa AUD 0.25%pa 0.34%pa At these prices: None of the other answers. O You can make an arbitrage profit and the arbitrage trade involves you borrowing NZD in the money markets. There are no arbitrage opportunities due to transaction costs. You can make an arbitrage profit and the arbitrage trade involves you borrowing AUD in the money markets. O You can make an arbitrage profit and the arbitrage trade involves you lending AUD in the money markets