Exercise 1. 15. Consider a simple nancial model with two times t = 0 and t = 1. There is a domestic currency A and a foreign currency B. The initial exchange rate is E20 2 2.5, La one can exchange any amount of currency A for B (or B for A) at time 0 at the rate of 2.5 units of A for 1 unit of B. (No fees are charged to make an exchange.) There is a bank at which one can borrow or invest any amount of A between t = O and t = 1 at the domestic one-period interest rate TA 2 .06. There is also a bank at which one can borrow or invest any amount of B between t : 0 and t : 1 at the foreign one-period rate 7'3. The forward exchange rate for delivery date 1 is Ff : 2.36, La it costs nothing at time 0 to enter into an agreement to purchase 1 unit of B at time 1 for Ff units of A. (An agent who enters this agreement is obligated to make the purchase at time 1.) Assuming that there is no arbitrage, nd the foreign interest rate 7'3