Suppose investors can choose any country in which to invest and that every investor in a particular countryearns the same interest rate on investment. Consider the case of an investor deciding between puttingmoney in the USA or India (currency is called rupee, its symbol is ₹). a. If the spot exchange rate is 66.845 ₹/$, interest in the USA is at an annual rate of i$= 4% interest in India is i₹=6%, then would you expect the forward rate one year from now to be more or fewer rupees per dollar?
b. How many rupees would you expect a dollar to be worth on the spot market in one year from now?
c. What would a profit seeking arbitrager do if the actual 12-month forward rate was $0.016/₹?