Consider the following information:

rUS = 2%; rUK = 3%

E0 = 1.30 dollars per pound F0 = 1.29 (1-year delivery)

where the interest rates are annual yields on U.S. or U.K. bills. Given this information:

a. Where would you lend?

b. Where would you borrow?

c. How could you arbitrage? P-63