Question: 2. a. Show that there is a direct relationship between the forward premium and the real interest rate differential between two currencies. b. Under what

2. a. Show that there is a direct relationship between the forward premium and the real interest rate differential between two currencies. b. Under what conditions will the forward premium equal the expected inflation differential between two currencies? 3. Give four reasons why, when interest parity does not hold exactly, we are unable to take advantage of arbitrage to earn profits

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