Question 1 (35%) Please show all your calculations. There is an American investor with $1000 to invest. There are two options to invest in: In Brazil or in the US. The interest rate in the US is 5%. The spot exchange rate is 4 Reals (currency of Brazil) to 1 US D. A Brazilian bank offers a fonivard exchange rate for a period of 1 year of3 Reals to 1 USD. a) Determine the interest rate in Brazil so that the investor is indifferent between investing in Brazil and the US b) For which values of the interest rate in Brazil is the investor going to invest in Brazil. c) What would happen to the value calculated in a) if the interest rate in the US increases? d) What would happen to the value calculated in a) if i) the bank decides not to offer any forward contract to the investor, and ii) the investor believes the spot exchange rate in one year will be 3 Reals to 1 USD? A French investor holds 1000 euros. She only can invest in Brazil or the US. The spot exchange rate is 1 euro to 1.2 USD, which is expected to be constant overthe following years. e) Determine the interest rate in Brazil so that the investor is indifferent between investing in Brazil and the US. f) How a Euro depreciation would affect e)? 9) Suppose the interest rate is benecial to invest in Brazil. How would the operation work? h) What is the expected return for the investor if the interest rate in Brazil is 6.5%