Question: Use the information below to answer the following question. (7 points) Exchange Rate Interest Rate APR S 0($/) $ 1.45 = 1.00 i $ 7

Use the information below to answer the following question. (7 points)

	Exchange Rate				Interest Rate	APR
S0($/)	$	1.45	=	1.00	i$		7	%
F360($/)	$	1.49	=	1.00	i		5	%

1) Compute one-year forward exchange rate (i.e., F360($/)) by using interest rate parity.

2) Do you think whether there is an arbitrage opportunity. If yes, propose the trading strategy and compute the arbitrage profits (suppose that the notional principal is $100 or 68.9655).

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