$[1]$ Currently, the spot exchange rate is $$1/$C$ and the one$-$year forward exchange rate is $$0\mathrm{.}85/$C$$.$ One$-$year interest is $3\mathrm{.}5\%$ in the U$.$S$.$ and $4\%$ in Canada. Assume you can borrow up to $$1$ in the U$.$S$.,$ or C$$1$ in Canada.

a$.$ Determine if IRP holds $($exactly$)$ between Australia and the United States. What is the U$.$S$.$ dollar return of savings in Canada in this case? Is it above or below the return in the U$.$S$.?$

b$.$ If IRP doesn$$t hold, explain in detail how you would realize certain profit in U$.$S$.$ dollar terms. What is the arbitrage profit?