In exchange rate risk management, you need to understand and use the forward exchange rate market. Consider the following data: GBP = Great Britain Pound = Great Britain's currency CAD = CAnadian Dollar = Canada's currency GBP / CAD spot rate: 1 GBP = 1.5 CAD GBP / CAD forward rate: 1 GBP = 1.3 CAD One-year Canadian commercial paper rate = 4% One-year Great Britain commercial paper rate = 5% a) Using the equation for covered interest rate parity, check if there is an arbitrage opportunity. Explain in words what this arbitrage opportunity is by explaining where this arbitrage opportunity can be found. [3 points) b) Implement an arbitrage of this situation. Clearly show your calculations and results. In addition, explain what you would need to do to produce a 2 million CAD arbitrage profit. [5 points] c) What should the GBP/CAD forward rate be to cancel any arbitrage opportunity? Show your calculations and any formula you have used. [2 points] You are now asked to analyze a new situation, with the following data: CAD/USD spot rate: 1 CAD = 0.96 USD CAD/Euro spot rate: 1 CAD = 0.7 Euro Euro/USD spot rate: 1 Euro = 1.2 USD 1-year Euro/USD forward rate: 1 Euro = 1.3 USD 1-year U.S. money market rate = 4% 1-year European money market rate = 5% d) Implement a triangular arbitrage. Explain what you need to do to generate a 1 million USD arbitrage profit. Clearly show your calculations. [4 points) e) Check if there is an arbitrage opportunity in the Euro/USD forward market. Which currency should you borrow in the spot market? Show your procedure and your calculations. [2 points)