The Egyptian Solidarity Fund is holding a 60 -day US \(\$ 1,000,000\) cerrificate of deposit in a New York bank on which it is carning \(4 \%\). A Beirut bank offers to pay \(4.5 \%\) if the Egyptian Solidarity Fund will transfer the funds to Beirut, to be held in the form of a 30 -day U.S. dollar-denominated certificate of deposit (i.c., a Eurodollar deposit).

a. What happens to the underlying dollar deposit in the New York bank?

b. How can the Beirut bank afford to pay an interest rate one-half of one percent above the rate paid by the New York bank?