5) Assume interest rates in the US are at 1.5% per year, and interest rates in Israel are at 6% per year, and that the shekel is trading at 3.16 sheckels/dollar.

a. If the two-year forward rate on sheckels is 3.38 sheckels/dollar, do you want to invest in dollars or sheckels to maximize your returns for the next two years?

b. How much would you make in arbitrage profits if you can borrow $10,000,000 or an equivalent amount of sheckels over this time period?

c. What sheckel/dollar forward rate implies no arbitrage?