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Currently, the spot exchange rate is $ 1 . 5 0 per and the three - month forward exchange rate is $ 1 . 5
Currently, the spot exchange rate is $ per and the threemonth forward exchange rate is $ per The threemonth interest rate is per annum in the US and per annum in the UK Assume that you can borrow as much as $ or If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit?
Explain how the IRP will be restored as a result of covered arbitrage activities.
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