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Currently, the spot exchange rate is $1.50/ and the one year forward exchange rate is $1.52/. The one-year interest rate is 8.0% per annum in
Currently, the spot exchange rate is $1.50/ and the one year forward exchange rate is $1.52/. The one-year interest rate is 8.0% per annum in the U.S. and 3% per annum in the UK. Assume that you can borrow as much as $1.500.000 or 1,000,000. Answer these 2 questions below (label with A, B) a. Determine whether the interest rate parity is currently holding (Yes/No). b. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit
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