In this scenario, currently, the GBPUSD spot exchange rate is 1.50 and the GBPUSD 3-month forward exchange rate is 1.52. In the U.S., the 3-month interest rate is based on the 8.0% annual interest rate (compounded annually). In the U.K., the 3-month interest rate is based on the 5.8% annual interest rate (compounded annually). Assume your team works for an import-export startup in Seattle that needs to borrow USD1,500,000, which is GBP1,000,000. Your CEO just read an article in The Economist about interest rate parity (IRP) and comes into your teams office with a question.

• Is the interest rate parity (IRP) currently holding or not? Yes or no?

• Show your calculations