a. Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now?
b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to (a)? Give a numerical example.