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Currently, the spot exchange rate is $1.57 per and the three-month forward exchange rate is $1.59 per . The three-month interest rate is 8.0% per

Currently, the spot exchange rate is $1.57 per and the three-month forward exchange rate is $1.59 per . The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,570,000 or 1,000,000.

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

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