b. Mr. Abbasi does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Europe are 5 percent, while one-year interest rates in the Pakistan are 3 percent. Abbasi converts PKR 100,000 to euros and invests them in Germany. One year later, he converts the euros back to PKR. The current spot rate of the euro is PKR 110.

i. According to the IFE, what should the spot rate of the euro in one year be?

ii. If the spot rate of the euro in one year is PKR 100, what is Abbasi's percentage return from his strategy?

iii. If the spot rate of the euro in one year is PKR 108, what is Abbasi's percentage return from his strategy?

iv.What must the spot rate of the euro be in one year for Abbasi's strategy to be successful?