Question: Consider the following information: rUS = 5% rUK = 7% E0 = $2 per pound F0 = $1.97/ (one-year delivery) Where the interest rates are

Consider the following information:
rUS = 5%
rUK = 7%
E0 = $2 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?
b. Where would you borrow?
c. How could you arbitrage?

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