Please assist me with answers to the questions in the attach file

Question 1 a) Suppose AXIM Bank quotes the /$ exchange rate as 110.30 - 110.40 and KUNTUM Bank quotes 110.40 - 110.50. Is there an arbitrage opportunity? If so, explain how you would profit from these quotes. If not explain why not. [4 marks] b) During a certain year, the rate of interest on a British deposit was 15 percent while the same on a U.S. deposit was 10 percent. This motivated a few big U.S. investors to invest in British deposits. However, after a year, the U.S. investors received lower rates of return on the British deposits compared to the U.S. deposits. Explain one possible reason for this outcome. [4 mark] c) Suppose that the spot rates of the US dollar, British pound, and Swedish kronor are quoted in three locations as follows: $/ New York London Stockholm $/SKr 4.00 4.00 0.50 0.50 Skr/ 20.00 20.00 Is there an arbitrage opportunity? If so, explain how you, as a trader who has $1,000,000, would profit from these quotes. If not, explain why not. [4 marks] d) Consider the information in Table 1 below. Suppose the expected exchange rates are the average expectations by investors for exchange rates in one year. Imagine that the interest rates are for equally risky assets and are annual rates. Table 1: Rates of Return Analysis Spot Exchange Rate Expected Exchange Rate Current Interest Rate (%) (i) (ii) (i) United States --3.0 Australia 3.60 A$/US$ 3.80 A$/US$ 6.0 Singapore 3.50 S$/US$ 3.3 S$/US$ 1.0 Calculate the rate of return for a US dollar investor investing in the Singapore deposit for one year. [3 marks] Calculate the rate of return for a US dollar investor investing in the Australian deposit for one year. [3 marks] Among these three investment options (United States, Australia, and Singapore), which is the worst place for the investor to invest? Why? [2 mark] 1 PART II Instructions to Candidates This is essay-type question. Credit will be given to clarity of expression and relevance of examples/illustrations used. Question 2. Carefully outline the economic implications of the AA-DD model for exchange changes and the international fisher effect. [20 marks] D. Sakyi (Examiner) 2