THREE Let the spot rate between Japan and the UK be 105 JPY/GBP, and the domestic Japanese 6 month (annualised) interest rate is 3.2% and the 6 month (annualised) UK interest rate is 5.4%. (a) Use the money markets to calculate how many JPY it will cost today to have 500,000 GBP available in the UK in 6 months. You must show each transaction needed to guarantee the funds are available in the UK in 6 months. (5 Marks) (b) What should the market quoted forward rate be to ensure there is no arbitrage opportunity? (5 Marks) (c) If the actual forward rate was 100 JPY/GBP, demonstrate how you make an arbitrage profit. (5 Marks) [TOTAL - 15 MARKS] END OF SECTION A