Solved: What are the possibilities for arbitrage profits, Finance Basics

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What are the possibilities for arbitrage profits

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?

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