1. Covered Interest Arbitrage in Both Directions (4 points). The following information is available:

• The current spot rate of the Moroccan dirham is $.110.
• The 60-day forward rate of the Moroccan dirham is $.108.
• The 60-day interest rate in the U.S. is 1 percent.
• The 60-day interest rate in Morocco is 2 percent.

a. What is the percentage return to a U.S. investor who conducts covered interest arbitrage? Did covered interest arbitrage work for the investor in this case?

b. What is the percentage return to the Moroccan investor?