Q2 a) Suppose the spot exchange rate is 1 = $1.10, the expected exchange rate one year in the future is 1 = $1.122, the dollar interest rate is 3%, and the euro interest rate is 1%. i) Calculate the expected rate of return on euro deposits. ) What is the rate of return on dollar deposits? ill) Does the interest parity hold? b) Suppose the spot exchange rate is 1 = $1.10, the expected exchange rate one year in the future is 1 = $1.133, the dollar interest rate is 4%, and the euro interest rate is 2%. 1) Calculate the expected rate of return on euro deposits. ) Which currency deposits the investors will want to hold? ) How will the spot exchange rate change? c) Suppose the spot exchange rate is 1 $1.10, the dollar interest rate is 5%, and the euro interest rate is 2%, and covered interest parity holds. Calculate the forward exchange rate one year in the future