As an employee of the foreign exchange department for a large company, you have been given the

following information.

Beginning of Year

Spot rate of the Pound $()=$$$1\mathrm{.}596$

Spot rate of the Australian dollar $($A$$)=$$$0\mathrm{.}70$

Cross exchange rate: $1=A$$$2\mathrm{.}28$

One$-$year forvard rate of an $AS=$$$0\mathrm{.}71$

One$-$year forward rate of a $=$$$1\mathrm{.}58004$

One$-$year U$.$S$.$ interest rate $=8\mathrm{.}00\%$

One$-$year British interest rate $=9\mathrm{.}09\%$

One$-$year Australian interest rate $=7\mathrm{.}00\%$

End of Year

$1=$$$1\mathrm{.}6758$

$AS=$$$0\mathrm{.}73$

$1=$ A$$2\mathrm{.}295$

a$.$ Determine whether triangular arbitrage is feasible, and if so$,$ how it would be conducted to make

a profit.

b$.$ Using the information provided, determine whether covered interest arbitrage is feasible and, if

so$,$ how it would be conducted to make a profit.

c$.$ Check the end of the year exchange rates. Are markets in equilibrium at that time? What can

you say about the difference with the one$-$year forward rates?