Mr$.$ Lee is a currency speculator. He observes the following information:

ili.

US annual interest rate is $2\mathrm{.}5\%$ UK annual interest rate is $2\mathrm{.}8\%$ Spot rate is $$2\mathrm{.}10//.$

One$-$year Forward rate of pound is $$2\mathrm{.}30/$&

With reference to IRP explain if it is possible for both parties to benefit from covered interest arbitrage. $(3$ marks$)$

Explain how covered interest arbitrage can be done to obtain profits. You can start with either #$1,000,000$ or $1,000,000.$

$(3$ marks$)$

Explain how market forces would react to ensure that covered interest arbitrage is no longer feasible. $(4$ marks$)$