1) One year interest rates are 10% in the US and 8% in Spain. The spot exchange rate for the US dollar is $1.1 to the EURO. The 12-month forward rate is $1.2

i) Suggest a way you might profit from the pricing inconsistency that is presented here, assuming you have do not have any initial investment funds

and you need to borrow. [10 marks]

ii) Will the situation persist forever? Explain your answer in the above context. [3 marks]

2) Advise a company which is contemplating direct investment in a country the main steps to be taken to minimize political risks? [15 Marks]