Assume the following information:
Spot rate of Canadian Dollar £0.4400
90 day forward rate of Canadian Dollar £0.4345
90 day Canadian interest rate -4%
90-day U.K interest rate - 2.5%
Required
a) Show the IRP does not hold.
b) Assume a U.K investor has £100,000. Determine the excess returns she would earn if she engaged in covered interest arbitrage than if she invested in her country.