1)You know the following. The interest rate in the $ is 10% and in the euro it is1 6%. If the spot ER is euro/$ 1 (meaning 1 euro for 1 dollar.) SHOW IN DETAIL what the forward rate will be. Assume that interest rate parity in an absolute form holds true. EXPLAIN your answer.
2) Assume PPP is present. The inflation rate in the US is 4% and in Britain it is 11%. The spot ER between the 2 currencies is $/BP1.4. Expound on what the forward rate should be and WHY