The spot USD / GBP rate is 1.5711. The1 year t-bill rate in the US is. 19%. The 1 year rate in the UK is 0.39%.
a) Calculate the 1 year USD/GBP 1 year forward rate.
b) If the observed 1 year forward rate is 1.60 USD/GBP, is there an arbitrage opportunity? How would you take advantage of this? Show all your transactions and steps.
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