1. The current USD/Euro exchange rate is $1.24/Euro. Risk free rates are 4.9% for the USD and 4.5% for the Euro. What is the interest rate parity one-year forward rate?

Record your answer directly as the number of USD per one Euro. For example, if you calculated $3.75/Euro, you would record your answer as: 3.75

2. This question relates to interest rate parity. Assume the current USD/Euro exchange rate is $1.23/Euro. Interest rates are 4.1% for the USD and 7.2% for the Euro. The one-year forward rate is $1.03/E. Determine if the setting is either in equilibrium, such that no arbitrage is possible, or in disequilibrium such that arbitrage is possible. Use the following values to record your answer:

Record an answer of 0 if there is no possible arbitrage in this situation

Record an answer of 100 if arbitrage is possible by borrowing Euros and investing in USD

Record an answer of -100 if arbitrage is possible by borrowing USD and investing in Euros