Jennifer Hart worked at Goldman Sachs. She notices the following quotes:

Spot exchange rate $1.312/

One-year forward exchange rate$1.275/

One-year Pound interest rate3.25% per year

One-year Dollar interest rate2.75% per year

Question 1:

According to the Interest Rate Parity condition, what is the 1 year forward exchange rate?

a.$1.269/

b.$1.281/

c.$1.318/

d.$1.306/

Question 2:

Assuming that Jennifer Hart can work with 1,000,000 Pound or 1,312,000 Dollar; compute the arbitrage profit?

a.57,317.65

b.59,180.47

c.24,817.65

d.$31,642.5