a$)$ Current interest rate in the UK and India are $1\mathrm{.}5\%$ and $5\mathrm{.}75\%$ per annum respectively.

Today$$s rate for one pound to Indian rupee is INR$92\mathrm{.}65/.$ In addition, $3-$month forward

exchange rate for one pound to Indian rupee is INR$88\mathrm{.}25/.$

$($i$)$ Determine whether the interest rate parity $($IRP$)$ is currently holding or not

$($ii$)$ Assume that you can borrow as much as $100,000$ or INR$1,000,000.$ If you are an arbitrageur, how could you make arbitrage profit? Show all the steps and

determine the arbitrage profit.

$($iii$)$ Explain the importance of your results for the covered interest parity condition.

$($iv$)$ Explain how the IRP will be restored as a result of covered arbitrage activities.