#8

IRP arbitrage a. If the interest rate in the United Kingdom is 5 percent, the Interest rate in the United States is 8 percent, the spot exchange rate is $1.5123/61, and Interest rate parity holds what must be the one-year forward exchange rate? (Do not round Intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) One-year forward exchange rate per b. If the forward rate is actually $1.5565/1. would you borrow in dollars or pounds to make an arbitrage profit? O Dollars O Pounds c. If you can borrow elther $1 million or $1 million (borrow in currency Identified in previous part) to capitalize on the arbitrage profit using the actual forward rate of $1.5565/61. what is your arbitrage profit at the end of the year expressed in $dollars? (Do not round Intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) Arbitrage profit in $