17. A U.S.-based currency dealer has good credit and can borrow $1,000,000 for one year. The one-year interest rate in the U.S. is is = 2% and in the euro zone the one-year interest rate is it = 6%. The spot exchange rate is $1.25 = $1.00 and the one-year forward exchange rate is $1.20 = (1.00. Show how to realize a certain dollar profit via covered interest arbitrage. A. Borrow $1,000,000 at 2%. Trade $1,000,000 for 6800,000; invest at is = 6%; translate proceeds back at forward rate of $1.20 = (1.00, gross proceeds = $1,017,600. B. Borrow (800,000 at ie = 6%; translate to dollars at the spot, invest in the U.S. at is = 2% for one year; translate (848,000 back into euro at the forward rate of $1.20 = (1.00. Net profit $2,400. C. Borrow 6800,000 at it = 6%; translate to dollars at the spot, invest in the U.S. at is = 2% for one year; translate (850,000 back into euro at the forward rate of $1.20 = (1.00. Net profit E2,000. D. Both c) and b)