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US dollar and British pound interest rates for six months are 4% and 3%, respectively. The spot exchange rate is $1.550 per pound. The six-month

US dollar and British pound interest rates for six months are 4% and 3%,

respectively. The spot exchange rate is $1.550 per pound. The six-month forward is

priced by the market at $1.525 per pound. What should the six-month forward be

priced at? Show how we can make a risk-free profit from this situation, using a

notional amount of US$1,000,000 to illustrate our answer.

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