PWONEL ALl 4L L ) Laapily (5 Marks) [TOTAL - 15 MARKS] QUESTION THREE Let the spot rate between Japan and the UK be 105 JPY/GBP, and the domestic Japanese 6 month (annualized) interest rate 1z 3.2% and the 6 month (annualized) UK interest rate 1z 5.4%. {2) Use the money markets to calculate how many JPY it will cost today to have 300,000 GEP available in the UK in & months. You must show each transaction needed to guarantee the funds are available in the UK in & months. (5 Marks) () What should the market quoted forward rate be to ensure there is no arbitrage opportunity? (5 Marks) {c) If the actual forward rate was 100 JPY/GBP, demonstrate how you make an arbitrage profit. (5 Marks) [TOTAL - 15 MARKS] END OF SECTION A