Consider the following information: rUS = 4%; rUK = 7% E0 = 2.00 dollars per pound F0

Question:

Consider the following information:
rUS = 4%; rUK = 7%
E0 = 2.00 dollars per pound
F0 = 1.98(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?