Currently, the spot exchange rate is $$1\mathrm{.}60$ per $$ and the three$-$month forward exchange rate is $$1\mathrm{.}62$ per $.$ The three$-$month interest rate is $8\mathrm{.}0\%$ per annum in the U$.$S$.$ and $5\mathrm{.}8\%$ per annum in the U$.$K$.$ Assume that you can borrow as much as $$1,600,000$ or $1,000,000.$

Required:

a$.$ Determine whether the interest rate parity is currently holding.

b$.$ If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit?

c$.$ Explain how the IRP will be restored as a result of covered arbitrage activities.

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Determine whether the interest rate parity is currently holding.

Determine whether the interest rate parity is currently holding.