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A 1 A trader, who is considering a 'carry trade' transaction between Sterling ( GBP ) and Polish Zloty ( PLN ) , faces the

A1 A trader, who is considering a 'carry trade' transaction between Sterling (GBP) and Polish Zloty (PLN), faces the following data:
Funds available to borrow:
Spot exchange rates
GBP 3-month interest rate:
PLN 3-month interest rate:
Current UK inflation rate:
Current Polish inflation rate:
Required
2 million GBP
0.6603 GBP per USD
3.1166 PLN per USD
0.49% per annum
3.55% per annum
2.7% per annum
1.7% per annum
(a) Calculate the current PLN/GBP cross rate;
(b) Calculate the profit that would be made if the exchange rate remains at its current level in three months' time;
(c) How would the profit figure change if the exchange rate varies in line with relative purchasing power parity (RPPP) as predicted by current inflation?
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