Arbitrage trading refers to the exchange of currencies with low interest rates into currencies with high interest rates for investment to obtain spreads. In this case, the interest rate of the pound is higher than that of the dollar, so the investor immediately converts the dollar into the pound (2 million/1.7320), reinvests the pound for one year, and sells the forward principal and interest of the pound investment [2 million/1.7320 * (1+1).
2 million/1.7320 * (1+13%) *1.7280-2 million * (1+1%)
Note: Remittance refers to the difference between spot and forward, expressed in points, with one point indicating the change of the fourth decimal place, one number indicating a point, and 20 points indicating the change of the real exchange rate of 0.0020.
According to exchange rate parity, currencies with high spot interest rates will generally depreciate in the future (this is the case in this case). At the same time of arbitrage, the loss rate is the swap rate because the currency with high interest rate depreciates in the future. If the loss rate is greater than the spread, arbitrage activities will not only make money, but also produce losses. Therefore, before arbitrage begins, we should compare swap interest rates and spreads. If the swap rate is greater than the spread, the arbitrage activity will lose money, and if it is lower than the spread, it will make a profit.
Swap interest rate = spread * forward month * 100%/ (spot exchange rate *12) = (1.7320-1.7280) *12 *1.
The price difference should be the spot exchange rate (1.7320) and the forward exchange rate (1.7280). The price difference given by your teacher is not accurate enough.