5) The Swedish Crown and Icelandic Crown (ISK/SEK) spot rate is 0.0592. The 1 year interest rate in Sweden is 0.5% and in Iceland the 1-year interest rate is 8.5%. The 5-year interest rate in Sweden is 4% and Iceland 8%, respectively. Start the answering by explaining the parity you need to rely on to answer the questions.

a) What is the forward rate on a one year forward contract? b) What is the expected spot-price in one year? c) Is it a forward premium or forward discount? d) What is the expected exchange rate in 5 years? (exclude concerns over liquidity and country specific risks)

Use the international 5 parities and explain why you choice the one being used by choice in order to solve the questions.