For full credit, please show your work. Answers without supporting work may not receive full credit. Partial credit may be awarded for incorrect answers. 1. The following FX quotes are currently available: Spot (09-18-20): USD 1.2500 = EUR 1 30-day (10-18-20): USD 1.2700 = EUR 1 30-day interest rates (i.e., loans taken out today that are due on 10-18-20): 30-day interest rate available on USD = 0.30% 30-day interest rate available on EUR = 0.50% You believe that the spot rate 30 days from now will be $1.2475=1. Assume that you have access to a credit line of $1,000,000 in New York, or equivalently, 800,000 from a Paris based bank. (2.5 points) a. Given your beliefs and the quotes and interest rates listed above, what trades should I undertake to maximize my expected return? b. Which type of arbitrage are you engaging in? What does your strategy imply regarding whether IRP and IFE are holding, or you expect them to hold, or not? Are you bearing risk in your trading strategy (regarding the outcome of the spot rate on October 18, 2020)? Please provide a short response.