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73 Suppose that the current spot exchange rate is 1.6/ and the one year forward exchange rate is 1.7/. The one year Interest rate is

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73 Suppose that the current spot exchange rate is 1.6/ and the one year forward exchange rate is 1.7/. The one year Interest rate is %7 In Euros and %5 In pounds. You can borrow 625,000 or the equivalent euro at the current spot exchange rate? 1. Find Interest rate parlty of /. Assume you are a UK pound based Investor? (2 Marks) 2. Show how you can reallze guaranteed profit from covered Interest? Assume you are a U.K pound based Investor? ( 4 Marks)

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