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URGENT ! QUESTION 16 The spot exchange rate now is $1.40 and the three month forward exchange rate is $1.42/. The three-month interest rate is

URGENT ! image text in transcribed
QUESTION 16 The spot exchange rate now is $1.40 and the three month forward exchange rate is $1.42/. The three-month interest rate is 8.0% per annum in the US and oper annum in the UK. Assume that you can borrow as much as $1,500,000 or 1,000,000 Determine whether the interest rate party is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the wbitrage profit. . Explain how the IRP will be restored as a result of covered arbitrage activities TTT Artal . 3 (12 . T Path: P Words:0

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