One year interest rates are 10% in the US and 8% in Spain. The spot exchange rate for

the US dollar is $1.1 to the EURO. The 12-month forward rate is $1.2

i) Suggest a way you might profit from the pricing inconsistency that is

presented here, assuming you have do not have any initial investment funds

and you need to borrow.

ii) Will the situation persist forever? Explain your answer in the above context.