1. Suppose that Britain and U.S. interest rates are i_UK=0.04 and i_US=0.03 respectively for 90 days, and that the spot exchange rates are $2.00/ while the forward rates are $1.96/. A New York arbitrageur begins with $20 million. Answer the following questions:

(1) Is there any opportunity for the arbitrage?

(2) What happens if many people take advantage of an opportunity for interest arbitrage?