1. Assume the following information:

Quoted Price

Value of GBP in U.S. dollars $1.40

Value of Australian dollar in U.S. dollars $.80

Value of GBP in Australian dollars AU$1.78

Is triangular arbitrage possible?

If so, how much you can benefit from this strategy if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of triangular arbitrage?

2. Assume the current U.S. Dollar-British spot rate is $1.4300/. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days?