Can you explain (show the calculations) Problem 1b? I don't know how he got the numbers and what calculations he did.

PROBLEM 1: The US has an official interest rate of 4.75% annualized, while the Euro zone has an official rate of 3.00% annualized; both are compounded continuously. a) Find the 2-year forward rate for the US Dollar/Euro exchange rate if the current (spot) rate is 1.066081 Dollars per Euro (=0.938015 Euros per Dollar). Next, find the 2-year forward rate for the Euro/Dollar exchange rate. Finally, check your answers and show they are consistent. Use 6 decimal places in your calculations. 1.066081$/e[(0.04750.0300)2]=1.0660811.035620=1.104054$/0.938015/$e[(0.03000.0475)2]=0.9380150.965605=0.905752/$1/1.104054$/=0.905753/$or:1/0.905752/$=1.104055$/or:1.104054$/0.905752/$=1.0 PROBLEM 1, cont. b) A European bank is willing to buy or sell a 2-year forward contract at 1.120000 Dollars per Euro (=0.869565 Euros per Dollar). Using the information from above and the grid below, show how you would profitably arbitrage this exchange rate. Describe each transaction (buy/sell/borrow/lend/etc.) and include (+) and () signs on your cash flows. Begin by borrowing or lending $1 and express the final profit in Dollars