1. Assuming FDIC insurance costs 0.40% per year on domestic deposits, and the reserve requirement is 3% on all deposits, what is the effective cost of 3-month CD paying 9% and e-month Eurodollars offering 9.20%? Which will banks prefer to borrow? What kind of arbitrage is this?
2. Calculate the cross-rate for pounds and marks given the indirect rate for pounds is 0.5 and the direct rate for marks is $2.40.