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1. Currently, the spot exchange rate is $1.60/and the one-year forward exchange rate is $1.58/. The annual interest rate is 2% in the U.S. and

1. Currently, the spot exchange rate is $1.60/and the one-year forward exchange rate is $1.58/. The annual interest rate is 2% in the U.S. and 4% inGermany. Assume that you can borrow as much as $1,000,000 or 625,000.Determine the arbitrage profit.

2. For a U.S. trader working in American quotes ($/), if the forward price is higher than the spot price, the U.S. dollar is trading at a discount in the forward market.

A. True

B. false

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