Let r denote annualized interest rates. Suppose r$ = 0.04, r= 0.07, S($/) = 1.50, and F6($/) = 1.49. Show that interest rate parity does not hold. Is the pound overvalued or undervalued at the observed forward rate? Outline the steps to make a covered interest arbitrage profit, and compute the profit. Assume the arbitrageur can borrow $1,000,000 or the equivalent (at the current spot rate).