1. Suppose U.S. interest rates are 9%, British interest rates are 11%, and the current spot rate is 1 = $60. You estimate that the equilibrium one-year forward rate is Ft=$5712, meaning 1 should be worth $5712 in theory (or alternatively, 0.6365 = $1). In practice, however, the forward rate seen in the market is $1.65 (meaning 1 = $1.65 or 0.6061 = $1). In order to profit from this, you do the following steps:
   1. (1) Borrow US dollars at 9% in the US (means youll owe $1.09 at end of the year for each dollar borrowed).
   2. (2) Sell dollars for pound in the spot market. For each dollar, youll get (1/1.6) or 0.625.
   3. (3) Invest your pounds in the UK at 11% (at year end youll get 0.625*1.11=0.6938).
   4. (4) Enter a forward rate agreement to buy $1.09 (amount youll owe in a year) by selling your pounds at the forward rate of 0.6061 = $1. Hence, in order to buy $1.09, it will cost 0.6606.
   5. (5) In a year, you complete the forward rate agreement and use the pounds you have invested to convert 0.6606 into $1.09. You can then repay your $1.09 loan in the US.

What is your net gain (in pounds per dollar borrowed)?