3 (Ch. 7) Covered Interest Arbitrage. Assume the following market quotes information with bid-ask spreads: Sl=25.75/26.00GBPMXNF10=27.00/27.30GBPMXNintaup=1.00%/1.25% imess=4.75%/5.00%T=90days Where GBP means the British pound and MXN means the Mexican peso, and the interest rates are both 90-day annualized nominal interest rates with bids and asks. Given this information, is covered interest arbitrage possible? (5 points) Design a covered arbitrage strategy and calculate its profits, ( 12 points) 4. (Ch. 8) Interpreting Inflationary Expectations. If investors in the United States and Mexico require the same real interest rate, and the nominal rate of interest is 5 percent higher in Mexico, what does this imply about expectations of U.S. inflation and Mexican inflation? What do these inflationary expectitions suggest about future exchange rates? (5 points)