1. If a Big Mac costs $3.00 in the US and the current spot exchange rate between the US Dollar and the Euro is $1.40/, based on the Absolute version of Purchasing Power Parity, what should the cost of the Big Mac be in Spain?
2. The current Spot rate between Australian Dollars and US Dollars is A1.12/US$. If the expected annual rate of inflation is 3% in Australia and 1% in the. US, according to the theory of Relative PPP, the Spot rate one year from now should be closest to ________.
3. If the real rate of return in a country is 0.5% per annum and the nominal rate of return for a bank deposit there is 5% per annum, then the Fisher Effect suggests the annual rate of inflation in that country is expected to be ________.
4. Althea the arbitrageur wants to make a riskless profit by attempting covered interest arbitrage. She has $1,000,000 and sees the following spot and forward rate quotes offered:

Spot = $1.40/Euro

Forward_{180 day} = $1.42/Euro

Alana can earn 5% interest per annum on a 1-year US government bond and 3% interest per annum on the equivalent French bond. Assuming Alana can sell either bond after six months for the same price she paid, excluding trading costs does Alana have an arbitrage opportunity and if so, approximately how much profit can she make?