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Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The...

Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The three-month interest rate is 5.84% per annum in the U.S. and 5.84% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000.

Is the interest rate parity (IRP) currently holding?

Yes

NO

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Answer #1

  

_______________________________

_______________________________

As per IRP

Spot Rate : 1 POund = $1.52

Forward Rate =

=

= 1.5856

Forward Rate : 1 Pound = $1.5856

While the actual rate is 1 Pound = $1.54

These two are not equal, therefore arbitrage opportunity exists.

NOTE: Do upvote the answer, if this was helpful.

NOTE: Please don't downvote directly. In case of query, I will solve it in comment section in no time.

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