Suppose that the annual interest rate is 5.096 in the United States and 3.5% in Germany, and that the spot exchange rate is Sl .12/ and the forward exchange rate, with one-year maturity (i.e. 360 days), is $1.16/. Assume that an arbitrager can borrow up to or 892,857 (which is the equivalent of at the spot exchange rate of Sl .12/), show arbitrage profit from a German investor point of view. (1) Is there an arbitrage opportunity? Explain (2) If yes, what is the profit? Show your calculations. (3) Suppose the expected inflation rate in United States is 7% while in Germany is 4.5%. Calculate the real exchange rate q and discuss how competitiveness of Germany will change relative to U.S. HELP ME!

Suppose that the annual interest rate is 5.0% in the United States and 3.5\% in Germany, and that the spot exchange rate is $1.12/ and the forward exchange rate, with one-year maturity (i.e. 360 days), is $1.16/. Assume that an arbitrager can borrow up to $1,000,000 or 892,857 (which is the equivalent of $1,000,000 at the spot exchange rate of $1.12/), show arbitrage profit from a German investor point of view. (1) Is there an arbitrage opportunity? Explain (2) If yes, what is the profit? Show your calculations. (3) Suppose the expected inflation rate in United States is 7% while in Germany is 4.5%. Calculate the real exchange rate q and discuss how competitiveness of Germany will change relative to U.S. Suppose that the annual interest rate is 5.0% in the United States and 3.5\% in Germany, and that the spot exchange rate is $1.12/ and the forward exchange rate, with one-year maturity (i.e. 360 days), is $1.16/. Assume that an arbitrager can borrow up to $1,000,000 or 892,857 (which is the equivalent of $1,000,000 at the spot exchange rate of $1.12/), show arbitrage profit from a German investor point of view. (1) Is there an arbitrage opportunity? Explain (2) If yes, what is the profit? Show your calculations. (3) Suppose the expected inflation rate in United States is 7% while in Germany is 4.5%. Calculate the real exchange rate q and discuss how competitiveness of Germany will change relative to U.S