8-9

a. If the Interest rate in the United Kingdom is 5 percent, the Interest rate In the United States is 4 percent, the spot exchange rate is $1.6789/11, and Interest rate parity holds, What must be the one-year forward exchange rate? (Do not round Intermedlate calculations. Round your answer to 4 decimal places. (e.9. 32.1616)) b. If the forward rate 15 actually $1.6618/1, would you borrow in dollars or pounds to make an arbitrage profit? Dollars x Pounds c. If you can borrow elther $1 million or 1 million (borrow in currency Identified In previous part) to capltalize on the arbitrage profit using the actual fonvard rate of $1.6618%1, what is your arbitrage profit at the end of the year expressed In \$collars? (Do not round intermedlate calculations. Round your answer to 4 decimal places. ( e.g. 32.1616))