1. European-style options on foreign currencies trade at the Philadelphia Exchange. A call option on sterling with an exercise price of 0.925 /$ and a time to expiration of 3 months has a price of 0.0125 /$. The current price of sterling is USD 0.94 /$, the volatility is 3%, the risk-free rate of interest on U.S. dollars is 5.40% continuous and the risk-free rate of interest on sterling is 5.80% continuous. Is there an arbitrage opportunity? If there is such an opportunity, what is the arbitrage profit and what is the strategy to earn it?