5 pts D Question 16 A U.S-based currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the US. is is* 3.5% and in the euro zone the one- year interest rate is ie-65%. The spot exchange rte is $1.25-1.00 and the one-year forward exchange rate is $1.20-1.00. Show how to realize a certain profit via covered interest arbitrage O Borrow $1,000,000 at 3.5%. Tracie $1,000,000 for 800,000; invest at i = 6.5%; translate proceeds back at forward rate of $1.20 1.00, gross proceeds $1,022,400. O It is impossible to make arbitrage proft. Borrow 800,000 at le=65%; translate to dollars at the spot, invest in the US. at is- 3.5% for one year, translate $1,035,000 back into euro at the forward rate of $ 1.20- 1.00. Net profit 10,500. Borrow 800,000 at le-65%; translate to dollars at the spot, invest in the US. at is- 3.5% for one year, translate 852,000 back into dollars at the forward rate of $1.20 1.00. Net profit $12,600