Use the following information to answer the next two questions.

7. As of today, the spot exchange rate is 1.5/$. The U.S. interest rate is 3% and the interest rate in the euro zone is 5%. What is the one-year forward rate that should prevail according to IRP? (Assume the US is the home country and round intermediate steps to four decimals.)

a. $.6796

b. $.6667

c. $.6221

d. $.6540

8. Suppose that the one year forward rate is $.75/ . Find the profit (in terms of percentage returns) you could earn via covered interest arbitrage. Round intermediate steps to four decimals.

		.1511
		.0967
		.1286
		.1249