The risk free rate in the U.S. is 3% APR while in Italy is 8% APR. The current exchange rate for Euro is 1 Euro = 1.50$. You will exchange $5,000 to Euro and deposit it in Italy for one year. 1) According to Interest Rate Parity (IRP), what would be the exchange rate between Euro and dollar at the end of one year? (6 points) 2) Based on your answer in 1), what is the annual premium/discount of U.S. dollar against Euro? (5 points) 3) To protect yourself from the exchange rate risk, suppose you also lock up an exchange rate contract 1$= 0.68 Euro at the end of the year to covert your Euro back to dollar. What is the extra profit (in U.S. dollar) investing in Italy compare to investing in the U.S. for the year? (6 points)