$1)$ The following question concerns covered international investment and interest rate parity.

a$.$ Explain the steps an investor uses to eliminate the asset$-$specific risk when investing in

foreign government debt $($which is considered asset$-$specific risk$-$free$)$ if matched by

the appropriate forward exchange contract.

b$.$ Using interest rate parity theory, explain the direction the forward exchange rate

would change if foreign interest rates fall and investors use forward contracts to cover

exchange rate risk.