USD/AUD June 1: 0.7566

Nov 28: 0.7233

USD/Pound: June 1: 1.3358

Nov 28: 1.2766

AUD/Pound: June 1: 0.7566/1.3358 = 0.5664

Nov 28: 0.7233/1.2766 = 0.5666

CIP:

This is then transposed to find the Forward Rate, 28^thof November 2018,

F = 0.5664 * (1.75)/(1.25)

F = 0.5664 * 1.4

F = 0.79296

Based on the information above, with exchange rates and the forward rate, how would you tackle the following question? I am not asking for the answer, simply a guide to answering this.

Question: The CIP does not hold at the moment with the 180-day forward rate,F_AU$/, of 1.7800.Explain how you can make risk free profits using spot and forward markets in 180 days if you can either borrow AU$1 million Australian dollars from an Australian bank or borrow AU$1 million Australian dollar worth of U.K. pounds from a U.K. bank for 180 days with the interest rates above today. Do not forget to pay the principal and interests on 28 November 2018.