8. (6 points) Define the Dollar-Euro exchange rate e(t) as the number of dollars per Euro. Suppose that US interest rate (i) and European interest rates (i*) are: i(t) = 1%, i(t+1) =1%, i(t+2) =2% i*(t) = -1%, i*(t+1) =0%, i*(t+2) = 2% It is announced at time t that e(t+2) =1.5, what is the numeric value of e(t+1) and e(t)? Plot the graph for interest rate gap i(t)-i*(t) and exchange rate e(t) at time t, t+1, and t+2. 8. (6 points) Define the Dollar-Euro exchange rate e(t) as the number of dollars per Euro. Suppose that US interest rate (i) and European interest rates (i*) are: i(t) = 1%, i(t+1) =1%, i(t+2) =2% i*(t) = -1%, i*(t+1) =0%, i*(t+2) = 2% It is announced at time t that e(t+2) =1.5, what is the numeric value of e(t+1) and e(t)? Plot the graph for interest rate gap i(t)-i*(t) and exchange rate e(t) at time t, t+1, and t+2