Required:

(i) Calculate the bid-ask percentage spread on the 90-day forward .

(ii) Calculate the annualised 90-day forward discount on ask for the .

(iii) Demonstrate how to realise a profit via covered interest arbitrage if you arbitrage 1m.

(iv) Explain why a covered interest arbitrage opportunity exists in this situation. Explain what is meant by the term uncovered interest arbitrage.

Your bank is currently providing the following information: Currency Spot Rate 90-day forward rate 90-day interest rate (annualised) UK Pound () 0.8646-53/ 0.8779-86/ 1.5 Euro () 0.25 Note: Assume there are 360 days in a year