A Treasury manager at New York Federal Reserve Bank can borrow for 3 months at 10

A Treasury manager at New York Federal Reserve Bank can borrow for 3 months at 10.15% and lend for 3 months at 10.25%. US Securities Exchange regulations requires that a borrowing of 3 million dollars be supported by 35,000 dollars of capital. (a) Exploiting the arbitrage spread by passive management through borrowing for 3 months and lending for 3 months; (i) Calculate the borrowing cost. (ii) Determine the income from the lending. (iii) Compute the implied profit and the rate of return. (b) If the manager aspires to pursue a strategy of positive gaping based on the expectation that interest rates will increase by 1% after 1 month; (i) Calculate the borrowing cost. (ii) Determine the income from the lending. (iii) Compute the implied profit and the rate of return.