Current quotes on the US dollar (USD) to Euro (EU) are spot = $1.0400 and 3-month futures = $1.0300. The risk-free rate in the US is 1.0% while the risk-free rate in the Eurozone is 1.5%. Both interest rates are continuously compounded.

a. Is there an arbitrage opportunity? Very briefly explain or show why/why not.

b. Based on the arbitrage-free futures price, is this futures market in contango or normal backwardation (informally)? Very briefly explain why.

c. If there is an arbitrage opportunity, what is the potential arbitrage profit? (If no in part a, then state N/A here.)

d. If there is an arbitrage opportunity, list 2 basic trades (long/short on which) that an arbitrageur would take to exploit this opportunity. (If no in part a, then state N/A here.)