1. Suppose you expect the Croatian currency, the Kuna, to appreciate 5% relative to the USD over the next 6 months. What additional information would you need in order to decide whether it is a good time to buy Kuna? Suppose you find out in the newspapers that the interest rate on Kuna deposits is 7%. What is the expected dollar return on Kuna deposits? What must the US interest rate be if the uncovered interest parity condition holds? 2. You are a foreign exchange trader specialized in the US dollar Swiss franc market (USD/CHF). One morning, you notice that the one-year dollar interest rate is 4%, while the one-year interest rate on Swiss francs is 2.7%. Todays USD/CHF rate is $1.7. (a) What spot rate do you expect for the USD/CHF in one year? (b) You log onto your electronic brokerage account and find that the current quote for the 360- day forward rate on USD/CHF is 1.79. Is there an arbitrage opportunity? If so, describe how you would take profit from it and how much you would get if you invested $1. What do you anticipate if all of your fellow traders start doing the same?