2 You have been given the following information: where r$annual interest rate on 3-month US-dollar commercial paper

2 You have been given the following information:

where r$¼annual interest rate on 3-month US-dollar commercial paper r£¼annual interest on 3-month British-pound commercial paper S($/£)¼number of dollars per pound, spot F1/4 ($/£)¼number of dollars per pound, 3-months forward On the basis of the precise criteria:

a In which commercial paper would you invest?

b In which currency would you borrow?

c How would you arbitrage?

d What is the profit from interest arbitrage per dollar borrowed?