QUESTION 3 a) The annual interest rate in Brazil is 8 percent. The annual U.S. interest rate is 12 percent. The spot rate of the Brazilian real is $ 0.19. The forward rate of the Brazilian real is $0.23 i) Calculate whether Interest Rate Parity holds?. [1 mark] ii) Is covered interest arbitrage feasible for US Investors assuming that the initial investment of $500,000? If yes, calculate the yield from the arbitrage. [2 marks] iii) Is covered interest arbitrage feasible for Brazil investors assuming that the initial investment is BRL 500,000? If yes, calculate the yield from the arbitrage. *In each case ((ii) and (iii)) explain why covered interest arbitrage is or is not feasible. [2 marks] b) In the past few decades, Chinese government took the initiative to do the direct intervention. The Chinese have often followed a policy of keeping the Chinese currency (Renminbi) undervalued. Explain why and how the Chinese intervene and how this intervention affects the US? [3 marks) [Total Marks: 8 MARKS]