1. Suppose you observe a spot exchange rate of $2.00/. If interest rates are 5 percent APR in the U.S. and 2 percent APR in the U.K., what is the no-arbitrage 7-year forward rate? Hint: in (USD/GBP)

1. 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.

Suppose you are a pound-based investor, determine the pound profit amount.