An investor has 15,000 and faces an interest rate in the euro zone of 4%. Or he could trade his euro for pounds sterling at the spot exchange rate and invest in the United Kingdom at i = 12%. The spot exchange rates are 1.00 = $1.45 and 1.00 = $1.22.

Questions:

1. What is the value of his investment in euros in 1 year?

2. What will be the value of his investment in pounds in 1 year?

3. What should 1-year forward exchange rate must be / according IRP?