1)(8 pts) Covered Interest Arbitrage in Both Directions. The oneyear interest rate in New Zealand is 4 percent. The oneyear U.S. interest rate is 6 percent. The spot rate of the New Zealand dollar (NZ$) is $.702. The one-year forward rate of the New Zealand dollar is $.709.

a)Is covered interest arbitrage feasible for U.S. investors? Suppose a US customer has $100,000, if he deposits the $100,000 in World National bank he will have $106,000 at the end of one year.If he uses covered interest arbitrage, how many US dollars will he have at the end of one year?

b)Is it feasible for New Zealand investors? Suppose a New Zealand customer has NZ$100,000, if he deposits the NZ$100,000 in World National bank he will have NZ$104,000 at the end of one year.If he uses covered interest arbitrage, how many NZ dollars will he have at the end of one year?