Question 2) Covered interest says that where is the home andz"' is the foreign interest rate, 3+1 is the forward price of foreign currency, andSa is the spot price of foreign currency. This presumes there are no costs of transacting inmarkets. Now imagine that a home investor would have to buy foreign currency at theosk price 5? and sell foreign currency forward at the bid price F11] . In general, the ask price is greater than the bid prices};a > 53' and Fl\"+I > F .11. . So the home investor would choose not to make a foreign investment if Now from the perspective of the foreign investor, the ask price of home currency in terms of foreign currency is equal to PS,l1 = 5'51 i.e. one over the bid price of home f currency in terms of foreign currency. Likewise for the foreign investor, the bid price of home currency in the forward market is equal toPFtEl = Pi, , i.e. one over the forward ll ask price of foreign currency in terms of home currency. So the foreign investor will not buy home bonds if PFh t+l_ (1+1):- [1+1] PS,\" From this, using the fact that ask prices are above bid prices, show that there can exist a region of no trade, where the foreign investor will not invest in home bonds, and the home investor will not invest in foreign bonds