Please help with the following problems. Provide step by step calculations along with explanations.
Given the following: Spot rate = $0.75/DM
Forward rate (1 yr) = $.077/DM
Interest rate (DM) = 7% per year
Interest rate ($) = 9% per year
Problem 1. If there are no transaction costs or taxes what are the possibilities for arbitrage profits?
Problem 2. If there is a transaction cost of .25% per transaction are there still possibilities for arbitrage profits?