Given that i=0.17; i*=0.005; F(HC/FC)= 8.10; S(HC/FC) = 7.40, discuss if there is an arbitrage opportunity.

What would you do if you are an arbitrageur? Considering the actions that arbitrageurs take, explain what you expect to happen for IRP condition to hold back again?

(Notes: interest rates are annual and forward rate is for a 12-month contract. HC stands for home currency and FC foreign currency)