Suppose the U.S. interest rate is 6% and the British interest rate is 4%. Further suppose that the spot exchange rate is $1.2125 per British pound, while the forward rate is $1.2625 per British pound.

Suppose an investor borrowed $1 million from a U.S. bank, converted the dollars to pounds, then loaned the pounds to a British borrower. After reconverting back to dollars, how much profit or loss would the investor earn?

PLZ provide steps to solve and the answer

EC 441 class