Suppose that the annual interest rate is 5% in the US and 2% in Germany, and that the spot exchange rate is $1.2/euro and the forward exchange rate, with one-year maturity, is $1.3/euro. If an equilibrium with no arbitrage opportunities is to be restored, what should be the US interest rate? (Assume all the other numbers remain the same.)

6.33%

7.25%

8.59%

10.50%

12.23%

If the annual interest rate is 4% in the US and 6% in Germany, then $ is expected to ____ against euro by ______%.

appreciate, 2%

appreciate, 3%

appreciate, 4%

depreciate, 2%

E)depreciate, 3%