Question: Consider a currency trader based in Germany. The current spot exchange rate is 1.1 per $1. The risk-free rate in the United States is 5

Consider a currency trader based in Germany. The current spot exchange rate is 1.1 per $1. The risk-free rate in the United States is 5 percent per year, and the euro risk-free rate is 8 percent per year. The current forward price on a one-year contract is 1.15 per $1.

a. Calculate the arbitrage-free forward price.

b. Based on the current forward price of:1.15 per $1, indicate how the trader can earn a risk-free arbitrage profit.

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