Answer the following questions. Each part of the question is not related to each other.

a) The (home) country has a flexible exchange rate and its current account and financial accounts are in balanced (and assume capital account is always equal to zero). Due to a successful COVID vaccination plan, the economy will reopen its economy earlier than expected and investors perceive the risk of investing in the country is lower than before. What happens to the country's exchange rate, financial account, and current account when the economy reaches its new equilibrium? Explain.

b) Suppose a currency trader observes the following exchange rates in the spot market: E_/USD= 0.5244

E_USD/= 1.2668

E_/= 0.6495

The currency trader realizes there is an arbitrage in trading USD and , what should they do? If they have USD10 million for currency arbitrage, how much would they earn in USD (in terms of millions)? Explain.

What happens to the above spot rates after they have carried the transactions above?

Note: In here, you can assume the currency trader can move the markets.