A bank purchases a six$-$month $$1$ million Eurodollar deposit

at an interest rate of $6\mathrm{.}5$ percent per year. It invests the funds

in a six$-$month Swedish krona bond paying $7\mathrm{.}5$ percent per

year. The current spot rate of U$.$S$.$ dollars for Swedish krona

is $$\frac{0\mathrm{.}18}{S}Kr.($LG $24-1)$

a$.$ The six$-$month forward rate on the Swedish krona is

being quoted at $$\frac{0\mathrm{.}1810}{S}Kr.$ What is the net spread

earned on this investment if the bank covers its foreign

exchange exposure using the forward market?

b$.$ At what forward rate will the spread be only $1$ percent