Q1) A businessman has just completed transactions in Italy and England. He is now holding 450,000 and 350,000 and wants to convert to U.S. dollars. His currency dealer provides this quotation: /$ 0.8550 20 $/ 1.1450 10 What are his proceeds from conversion?

Q2)

Suppose that the current spot exchange rate is 0.8/$ and the 1-year forward exchange rate is 0.9/$. The interest rate is 4 percent annually in the United States and 5 percent annually in UK. Assume that you can borrow up to $1,000,000 or 800,000.

Is there an arbitrage opportunity? What would be the amount of the arbitrage profit in dollars? Explain the arbitrage process clearly.