Use the following information to answer the next two questions.

An investment banker in Spain notices that 1 year interest rates in Spain and Mexico are 8% and 12%, respectively. Current spot rates are as follows: 1.02/$, $.15/MP

The one year forward rate is .18/MP and the expected spot rate one year from now is .14/MP.

1) What should the forward premium be for IRP to hold?

A).037 B)-.0357 C).04 D)-.04

2) Assuming that the banker has access to one million euros, find her covered interest arbitrage profit (in euros). Round immediate steps to four decimals. A)0 B)38,600 C)197,700 D)237,000

SUE 1 BEST SUE 1 BEST