(C) The spot rate of the Brazilian Real (BRL) is $0.44 US. The one-year U.S. interest rate is 5.75% and the one-year Brazilian interest rate is 9.52%.

Question 1: Assuming the existence of interest rate parity, determine the forward premium or discount of the Brazilian Real (be sure to identify whether it is a premium or a discount).

Question 2: Given the forward discount for the Real in question 1, now estimate the forward exchange rate of the Brazilian Real.

Question 3: Given interest rate parity, assume that the forward rate of the Brazilian Real is the same as the spot rate, one BRL = $0.44 US. Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 5.75%.