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Suppose you observe the following exchange rates: S ( $ / ) = 1 . 3 . The one - year forward rate is F

Suppose you observe the following exchange rates: S($/)=1.3. The one-year forward rate is F1($/)=1.32. The risk-free interest rate in the U.S. is 5% and in UK it is 2%. You can borrow either $1,300,000 or 1,000,000.
Briefly and clearly explain your arbitrage strategy. Show your work in each step to receive partial credits.

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