Question $3(10$ marks$)$

a$)$ Assume that you can buy $250$ Canadian dollars with $100$ British

pounds and you have $100$ British pounds. The following exchange

rates are available.

Complete the table above and compute how much profit, if at

all, you can earn with triangle arbitrage?

$(8$ marks$)$

b$)$ Assume the current spot rate is C$$1\mathrm{.}2103$ and the one$-$year forward

rate is C$$1\mathrm{.}1925.$ The nominal risk$-$free rate in Canada is $3$

percent while it is $4$ percent in the U$.$S$.$

At what Canadian interest rate, there will be no possibility for

profitable arbitrage?

$(2$ marks$)$