Question 1 suppose you observe a spot exchange rate of $1.50/€. if interest rates are 3% apr in the u. s. and 5% apr in the euro zone, what is the no-arbitrage 1-year forward rate? a. €1.5291/$ b. $1.5291/€ c. €1.4714/$ d. $1.4714/€ 1 points question 2 suppose that the one-year interest rate is 5.0 percent in the united states and 3.5 percent in germany, and the one-year forward exchange rate is $1.16/€. what must the spot exchange rate be? a. $1.1768/€ b. $1.1434/€ c. $1.12/€ d. none of the options 1 points question 3 forward parity (essentially a variant derived from the expectations theory) states that a. any forward premium or discount is equal to the expected change in the exchange rate. b. any forward premium or discount is equal to the actual change in the exchange rate. c. the nominal interest rate differential reflects the expected change in the exchange rate. d. an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. 1 points question 4 if the interest rate in the u. s. is i$ = 5 percent for the next year and interest rate in the u. k. is i£ = 8 percent for the next year, uncovered irp (uip) suggests that a. the pound is expected to depreciate against the dollar by about 3 percent. b. the pound is expected to appreciate against the dollar by about 3 percent. c. the dollar is expected to appreciate against the pound by about 3 percent. d. both a. and c.1 points question 5 suppose that the annual interest rate is 2.0 percent in the united states and 4 percent in germany, and that the spot exchange rate is $1.60/€ and the forward exchange rate, with one-year maturity, is $1.58/€. assume that an arbitrager can borrow up to $1,000,000 or €625,000. if an astute trader finds an arbitrage, what is the net cash flow in one year? $238.65 $14,000 $46,207 $7,000 1 points question 6 suppose that the one-year interest rate is 5.0 percent in the united states; the spot exchange rate is $1.20/€; and the one-year forward exchange rate is $1.16/€. what must the one-year interest rate be in the euro zone to avoid arbitrage? 5.0% 6.09% 8.62% none of the options 1 points question 7 covered interest arbitrage (cia) activities will result in unstable international financial markets restoring equilibrium prices quickly. a disintermediation no effect on the market. 1 points question 8 a currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. the one-year interest rate in the u. s. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%. the spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00. show how to realize a certain profit via covered interest arbitrage. a. borrow $1,000,000 at 2%. trade $1,000,000 for €800,000; invest at i€ = 6%; translate proceeds back at forward rate of $1.20 = €1.00, gross proceeds = $1,017,600. b. borrow €800,000 at i€ = 6%; translate to dollars at the spot, invest in the u. s. at i$ = 2% for one year; translate €848,000 back into dollars at the forward rate of $1.20 = €1.00. net profit $2,400. c. borrow €800,000 at i€ = 6%; translate to dollars at the spot, invest in the u. s. at i$ = 2% for one year; translate €850,000 back into euro at the forward rate of $1.20 = €1.00. net profit €2,000. d. both b. and c)