Can you answer b.) part iii.) and iv.)

Question 1. The spot exchange rate between US dollars and South Korean won is KRW1130/USD1. The following annual rates are observed and expected to persist over the short term: S. Korea USA Inflation rate 6% 2.5% Interest rate 4% x% [2] marks (a) Using the purchasing power parity relationship, estimate the percentage change in the US dollar over the next year. (b) The interest rate in the USA is known to follow the Fisher Effect. (1) Calculate x, the interest rate in the USA. [3] marks (ii) Using the exact calculations from interest rate parity theory, calculate what the three- year forward exchange rate would be. [3] marks (iii) A US investor has the opportunity to invest in domestic bonds or won-bonds. The domestic US bonds have a face value of $1000, pay semi-annual coupons of 10% and have a maturity of three years. The won-bonds pay annual coupons of 14%, have a face value of W1000, and a maturity of three years. Calculate which bond gives the US investor the better return. [6] marks (iv) From the US investor's perspective, discuss the advantages and disadvantages of investing in eurobonds, as opposed to the domestic bonds, or won-bonds described in part (b) (iii) above. [6] marks