You have the following information. The current nominal interest rate for a 1-year deposit in a U,S bank is 5% (0.05). The current spot exchange rate between the U.S and Venezuela is 1.0 (U.S dollars per Venezuelan Bolivars). The 1-year forward exchange rate between the US and Venezuela is 0.50. The U.S real interest rate is 0.03.

Answer the following questions.

a. What are nominal interest rates in Venezuela?

b. What is the expected spot U.S exchange rate one year from now?

c. What is the expected inflation rate for Venezuela over the next year?

d. Given your answers to a. through c. where should you invest, the US or Venezuela?