Assume the following information:
Spot rate of £ = $1.60
180-day forward rate of £ = $1.56
180-day British interest rate = 4%
a. Based on this information, is covered
interest arbitrage by US investors is possible (assuming that U.S.
investors have $1,000,000)? If yes, Explain how to conduct it in
your words.
b. Suppose: 180-day US interest rate = 3%. Is
the above strategy is feasible? Explain your answer