(1)An MNC, based in New York, wants to forecast the value of the euro to assist the Corporation in making some vital financial decisions. The following estimated model was produced by the research department of the firm. Et -0.001+ 0.55 Il0.48Rt % change in exchange rate for the euro Il- inflation rate differential (US & Germany) R- real interest rate differential (US & Germany) where Et (a)Briefly comment on the appropriateness of the relationship suggested by the estimated parameters. (b)Suppose the firm developed a probability distribution for the variable with instantaneous impact as follows: Possible outcomes (%) Probability (%) determine the expected value of the change in the euro assuming the lagged inflation rate deferential is 1%. (c)Based on the result in part (b), find the forecast exchange rate for the euro if the spot rate is $1.05. -1.5-2.0 50 -2.5 30 20