$1)$ The one$-$year interest rate is $3\%$ in the U$.$S$.$ and $6\%$ in the Eurozone. On the other hand, the one$-$year inflation is $2\%$ in the U$.$S$.$ and $4\%$ in the Eurozone. The spot exchange rate is $$1\mathrm{.}40/.$ a$)$ When the $1-$year forward market exchange rate is $$1\mathrm{.}30/,$ figure out the one$-$year forward premium$/$discount for euro. $(20$points$)$

b$)$ What is the equilibrium one$-$year forward exchange rate based on Interest Rate Parity $($IRP$)?(20$points$)$

$$ c$)$ What is the equilibrium one$-$year forward exchange rate based on Purchasing Power Parity $($PPP$)?(20$points$)$

$$ d$)$ Given the difference between the forward market exchange rate of $$1\mathrm{.}30/$ and the equilibrium forward exchange rate based on IRP or PPP$,$

$$ i$)$ Which currency is overpriced$/$overvalued on the forward market? Dollar or euro? $(20$points$)$

$$ ii$)$ Which position do you want to take on the forward market? A long position or short position for euro? $(20$points$)$ iii$)$ Figure out your profit in U$.$S$.$ dollars when you have $$1$mil. to invest and employ CIA$($covered interest arbitrage$)(30$points$).$ Show your work. $$