Covered Interest Arbitrage and Economic Theories

Assume the following market quotes information, where the interest rates are quoted in annualized forms and have terms of 30 days: (You are the banks customer, and the GBP represents the British pound.)

St(GBPUSD) = 1.0950 (current spot exchange rate in GBPUSD)

Ft,30(GBPUSD) = 1.0975 / 1.0990 (30-day forward bid & ask exchange rates in GBPUSD, quoted as of now)

iGBP = 2.25% (annualized 30-day nominal interest rate in GBP)

iUSD = 3.75% (annualized 30-day nominal interest rate in USD)

T = 30 days

Questions:

a. Given this market quote information, is covered interest arbitrage possible? (1 point) Why? (2 points)

b. Design a covered arbitrage strategy and calculate its profits. (5 points)

c. Based on covered interest rate parity (IRP), what is your expectation for the exchange rate in 30 days? (2 points)