Question

1. A British money manager with the ability to borrow £12,000,000 observes that the one-year interest rate is 5 percent in the United Kingdom and 9 percent in the US. The current spot exchange rate is $1.05/£. What should be the one year forward rate according to IRP? Round intermediate steps to four decimals.

		£.1.0115/$
		£.9887/$
		£.9174/$
		£.1.09/$
		None of the above

2. Suppose the one year forward rate is £1.1/$. Find the profit available (in terms of pounds) via covered interest arbitrage. Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.