1.) Suppose we observe the following for the Canadian dollar (CAD) and the British Pound (GBP):

1 USD = 0.834 CAD 1 USD = 1.298 GBP Suppose the cross-rate is quoted as: 1 GBP= 0.971 CAD

What is the arbitrage profit on $62,131?

Enter your answer round off two two decimal points.

2.) Assume the current spot rate between the UK and the U.S. is 0.823 per $1, the expected inflation rate in the U.S. is 1.19 percent, and the expected inflation rate in the UK is 3.41 percent. If relative purchasing power parity exists, what will the exchange rate be next year?

Enter your answer rounded off to FOUR decimal points. Do not enter any currency symbol in th answer box.