QUESTION TWO (20 MARKS) a) Howard borrows 5,000,000 for 6 months at an annual rate of 0.60% and uses the proceeds to invest in the U.S. money market at an annual rate of 4.50%. i) If the spot rate today is 115/$ and the spot rate in 6 months is 113/$ Howard's net proceeds will be: - Mode Option (7 marks) ii) Howard's current strategy still exposes him to currency risk. Identify the risk and recommend the way he can mitigate the risk. oving... (3 marks) b) Assume the following information for a bank quoting on spot exchange rates: Exchange rate of Singapore dollar in U.S. $ $.60 Exchange rate of pound in U.S. $ $1.50 Exchange rate of pound in Singapore dollars S$2.60 i) Determine if arbitrage opportunity is possible. If yes, compute the profit from the arbitrage opportunity. Show the working. (7 marks) 1 FIRST SEMESTER 2020/2021 SESSION MATRIC NO.: ii) As you and others take up the arbitrage opportunity, what should logically happen to the spot exchange rates