Suppose that the 7-month riskless interest rate in the United Kingdom is 3.5% p.a. and that in Japan is 2% p.a. (both rates continuously compounded). The current spot exchange rate and forward exchange rate deliverable in 7 months quoted in the market are (Pound = United Kingdom pounds, Yen = Japanese Yen): Spot rate 7-month forward rate 1 Pound = 152.00 Yen 1 Pound = 153.00 Yen Assume you can trade at these spot and forward rates and borrow or lend in Pounds or Yens at the annualized 7-month riskless interest rates stated above. a. Are there arbitrage opportunities? Support your answer by calculating the theoretical price of a 7-month forward contract. (2 marks) b. Provide detailed steps required to arbitrage and show detailed calculations of the initial (now) and terminal (in 7 months) cash flows from each step. Assume that you can borrow or lend at the interest rates quoted above. Assume further that the contract size of the forward contract you are going to enter into is 1,000,000 Pounds (long or short) and that you would like to realize the arbitrage profit now (rather than later) in Pounds (not in Yens). (10 marks)