Suppose that both Korea (Home country) and France (Foreign country) produce exactly the same semiconductor. Prices of the semiconductor in each country (denominated in Won and Euro, respectively) at given time t are Pt and P t . Exchange rate at time t quoted in direct convention (Won/Euro) is Et . There is no transportation cost between two countries, so French semiconductor can be imported without cost into Korea. However, rate tariff is imposed when Korean semiconductor is imported into France. i.e., if a trader sells one unit of the semiconductor to France at price P t , she can bring only P t 1+ to her pocket while paying 1+ P t to French government. (a) Write the conditions that Pt , P t , Et , and must satisfy to rule out any arbitrage gains by semiconductor traders. (b) Show the relative version of LOP holds ( Pt+1 Pt = Et+1 Et P t+1 P t ) between times t and t + 1 if either Korea is systematically the exporter or France is the exporter in both time t and t + 1.