Question: Consider the following information: rUS = 4% rUK = 7% E0 = 1.60 dollars per pound F0 = 1.58 (1- year delivery) where the interest

Consider the following information:

rUS = 4% rUK = 7%

E0 = 1.60 dollars per pound

F0 = 1.58 (1- year delivery)

where the interest rates are annual yields on U. S. or U. K. bills. Given this information,

a. Where would you lend?

b. Where would you borrow?

c. How could you arbitrage?

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