Given the following:

i_$ = 8%

i = 5%

S($/) = 0.95

F($/) = ?

1. Suppose the annual interest rate is 5% in the US and 8% in the UK, and that the spot exchange rate is $1.50/ and the forward exchange rate, with one year maturity, is $1.48/

Is arbitrage possible; in other words does IRP hold?

If it does not, how would you conduct arbitrage i.e., borrow home & invest abroad, or vice versa. Assume that you can borrow $1,000,000 or its equivalent, 666,667

2. Assume that IRP exists. The 1-year nominal interest rate in the US is 7%, while the 1-year nominal interest rate in Australia is 11%. The spot rate of the Australian dollar is $0.60. What is the equilibrium forward rate according to IRP?

3. The interest rate in the U.S. is 10%; in Japan, the rate is 7%. The spot rate for the yen is $0.008200. If IRP holds, what is the 90-day forward rate?

4. Inflation was 6% in the US and 2% in Germany, while during the same period of time the euro strengthened in nominal terms by 6% against the dollar.

-What happened to the real value of the euro (the $/euro exchange rate) during that period?

Given the following: i$ = 8% i = 5% S($/) = 0.95 F($/) = ? 1. Suppose the annual interest rate is 5% in the US and 8% in the UK, and that the spot exchange rate is $1.50/ and the forward exchange rate, with one year maturity, is $1.48/ - Is arbitrage possible; in other words does IRP hold? - If it does not, how would you conduct arbitrage - i.e., borrow home & invest abroad, or vice versa. Assume that you can borrow $1,000,000 or its equivalent, 666,667 2. Assume that IRP exists. The 1-year nominal interest rate in the US is 7%, while the 1-year nominal interest rate in Australia is 11%. The spot rate of the Australian dollar is $0.60. What is the equilibrium forward rate according to IRP? 3. The interest rate in the U.S. is 10%; in Japan, the rate is 7%. The spot rate for the yen is $0.008200. If IRP holds, what is the 90-day forward rate? 4. Inflation was 6% in the US and 2% in Germany, while during the same period of time the euro strengthened in nominal terms by 6% against the dollar. -What happened to the real value of the euro (the $/euro exchange rate) during that period