Exercise 10.3 (Interest-Rate Differentials) Suppose that the euro-dollar spot exchange rate, &, is 1.5 dollars per euro, that the forward exchange rate, Ft, is 2 dollars per euro, that the nominal interest rate in the United States is 3 percent, and the nominal interest rate on euro deposits in Frank- furt is 1 percent. Assume further that with probability 0.5 Ett, is 2 and with equal probability it equals 1. 1. Calculate the covered interest-rate differential. 2. Calculate the uncovered interest-rate differential. 3. Calculate the forward discount. 4. Suppose a carry trade investor decides to invest 1 million dollars. How much money would she make or lose under each of the two possible realizations of Et+1