3. (3) Assume the following data. Further assume that lending and borrowing interest rates are the same.

US interest rate = 6% a year (1.5% for 3 months),

UK interest rate = 4% a year (1% for 3 months)

Spot exchange rate now = 1.5$/BP

90-day forward exchange rate now = 1.59$/BP

(a) Show numerically if there is an opportunity for a covered interest rate arbitrage?

(b) Where would you invest for 90 days, covering foreign exchange risk?

(c) Where would you borrow for 90 days, covering foreign exchange risk?