Given the spot rate equals $1.5/ and 8 month forward rate is $1.53/, if the positive interest rate differential in favor of UK is 3 percent per year, calculate return rate per year that an covered interest arbitrageur roughly earns and identify the impact of this covered interest arbitrage process on interest differential in favor of U.K. *

2 points

a.return rate = 6% and a decrease in interest rate differential in favor of UK

b.return rate = 3% and a decrease in interest rate differential in favor of UK

c.return rate = 3% and an increase in interest rate differential in favor of UK

d.return rate = 6% and an increase in interest rate differential in favor of UK