1) Explain in your own words what Interest Rate Party is. Why is the IRP concept important? 2) Provide a solution to the following problem (refer to Chapter 6 of the textbook, Examples 6.1,6.2): Currently, the spot exchange rate is CHF 0.89/S and the three-month forward exchange rate is CHF 0.86/S. The three-month interest rate is 5.6% per annum in the U.S. and 4.0% per annum in Switzerland. Assume that you can borrow as much as $1,120,000 or CHF 1,000,000. a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. c. Explain how the IRP will be restored as a result of covered arbitrage activities. Submit your original responses to the questions above to Project 1 in Moodle