(Answered) Finance assignmentpoveide a sulotion with it i dont want

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Finance Assignment

Poveide a sulotion with it I don't want only the answer

Suppose that the current spot exchange rate is €1.50/£ and the one-year forward exchange rate is €1.60/£. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., £666,667, at the current spot exchange rate.

a) Is covered interest arbitrage feasible in this example? Show your work and explain

b) Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.

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