### Assume the interest rate is 16% on pounds sterling and 7% on the Euro.

14. Assume the interest rate is 16% on pounds sterling and 7% on the Euro. At the same time, inflation is running at an annual rate of 3% in Germany and 9% in England. a. If the Euro is selling at a one-year forward premium of 10% against the pound, is there an arbitrage opportunity? Explain. b. What is the real interest r