Problem
1. Suppose 1-year US Treasury bills yield 10 percent, and 1-year German Treasury bills yield 6 percent. If the spot exchange rate is $0.50 = DM 1.00, what should be the forward exchange rate? Explain why.
2. "If the spot exchange rate is DM 4.00 = $1.00, and short-term interest rates are 10 percent in Germany, 6 percent in the United States, the forward exchange rate will probably be more than DM 4 for $1.00." Do you agree? Defend your answer.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.