Question:
Rus = 5%
ruk = 7%
E0 = 2.0 dollars per pound
F0 = $1.97/ £ (one-year delivery)
where the interest rates are annual yields on U.S. or U.K. bills. Given this information:
a. Where would you lend? Why?
b. Where would you borrow? Why?
c. How could you arbitrage?