1. Assume the risk-free rate in the U.S. is 1.8% (annualized) and the risk-free rate in Brazil is 4.9% (annualized). If you borrow $100,000 at the U.S. risk-free rate, exchange into Brazil reals (BRL) at the spot rate and invest at the Brazil risk-free rate for 6 months,

(a) What is your profit if the USD/BRL rate in 6 months is the same as todays rate?

(b) Show the steps for how you could try to make money from the situation where the 6 month forward USD/BRL rate = the spot rate

(c) What is the 6 month forward rate where there is no arbitrage?

(d) Is there arbitrage using the actual 6 month forward rate on Barchart (compared to the spot price at the same time)? (Note: use the bid-ask spread in your calculations)

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