Your bank is currently providing the following information: Currency UK Pound (£) Euro (€) Spot Rate £ 0.8646-53/€ £ 0.8779-86/€ 90-day forward rate 90-day interest rate (annualised) 1.5 0.25 Note:...

Required:

(i) Calculate the bid-ask percentage spread on the 90-day forward £.

(ii) Calculate the annualised 90-day forward discount on ask for the £.

(iii) Demonstrate how to realise a profit via covered interest arbitrage if you arbitrage £ 1m.

(iv) Explain why a covered interest arbitrage opportunity exists in this situation. Explain what is meant by the term ‘uncovered interest arbitrage’.

Extracted text: Your bank is currently providing the following information: Currency UK Pound (£) Euro (€) Spot Rate £ 0.8646-53/€ £ 0.8779-86/€ 90-day forward rate 90-day interest rate (annualised) 1.5 0.25 Note: Assume there are 360 days in a year.