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2) The interest rate is 2.5% in the UK and 11% in the Philippines. The spot rate is GBP/PHP=67.5 and the one-year forward rate for
2) The interest rate is 2.5% in the UK and 11% in the Philippines. The spot rate is GBP/PHP=67.5 and the one-year forward rate for GBP/PHP is 72. a) Does the Interest Rate Parity hold? Show your work. b) Compute the interest rate in the Philippines that would make the IRP hold. c) If the IRP does not hold, compute the profit you could generate from Covered Interest Arbitrage if you start with 20,000 GBP or 20,000 PHP
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