Anser the question 3

WY OODALOCEDULU POLOS for a three-month investment. There are two alternative ways of paying for your Jaguar. a. Keep the funds at your bank in the United States and buy a 35,000 forward. b. Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the maturity value becomes equal to 35,000. Evaluate each payment method. Which method would you prefer? Why? 3. Currently, the spot exchange rate is $1.50/ and the three-month forward exchange rate is $1.52/. The three-month interest rate is 8.0 percent per annum in the U.S. and 5.8 percent per annum in the U.K. Assume that you can borrow as much as $1,500,000 or 1,000,000. a. Determine whether interest rate parity is currently holding. b. If IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. c. Explain how IRP will be restored as a result of covered arbitrage activities. 4. Currently, the spot exchange rate is $0.85/A$ and the one-year forward exchange rate is $0.81/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or AS1,176,471, which is equivalent to $1,000,000 at the current spot rate. a. Determine if IRP is holding between Australia and the United States. b. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms