Mr. Soros is an international foreign exchange trader. He may use any major currency that his bank holds to conduct arbitrage investment. He is authorized to use US$480,000 and he faces the following rates. Assume that there are 360 days in a year with no transaction cost, and the bid and ask interest rates are the same. Current spot rate of the British pound against US$ 90-day forward rate of the British pound against US$ Interest rate in the U.S. dollar money market Interest rate in the British pound money market $1.200/ $1.176/ 8% per annum 20% per annum (a) What is the forward premium/discount on the pound against U.S. dollar on an annualized basis (p) (in percentage)? Indicate clearly whether it is a forward premium or discount. (5 marks) (b) Based on your answer in part (a) and the interest rates in these two money markets, which money market would you suggest Soros to borrow and which money market would you suggest him to lend (invest) to make an arbitrage profit? Briefly explain your answer in less than 100 words. (6 marks) (c) From the information given, Soros may be able to find an arbitrage opportunity. If yes, is this a Covered Interest Arbitrage (CIA) or Uncovered Interest Arbitrage (UIA)? (3 marks) Mr. Soros is an international foreign exchange trader. He may use any major currency that his bank holds to conduct arbitrage investment. He is authorized to use US$480,000 and he faces the following rates. Assume that there are 360 days in a year with no transaction cost, and the bid and ask interest rates are the same. Current spot rate of the British pound against US$ 90-day forward rate of the British pound against US$ Interest rate in the U.S. dollar money market Interest rate in the British pound money market $1.200/ $1.176/ 8% per annum 20% per annum (a) What is the forward premium/discount on the pound against U.S. dollar on an annualized basis (p) (in percentage)? Indicate clearly whether it is a forward premium or discount. (5 marks) (b) Based on your answer in part (a) and the interest rates in these two money markets, which money market would you suggest Soros to borrow and which money market would you suggest him to lend (invest) to make an arbitrage profit? Briefly explain your answer in less than 100 words. (6 marks) (c) From the information given, Soros may be able to find an arbitrage opportunity. If yes, is this a Covered Interest Arbitrage (CIA) or Uncovered Interest Arbitrage (UIA)