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7) The spot exchange rate for CAD/USD is 1.25; the forward rate in 12 months for CAD/USD is 1:27. US interest rate is 1.5% per

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7) The spot exchange rate for CAD/USD is 1.25; the forward rate in 12 months for CAD/USD is 1:27. US interest rate is 1.5% per year while Canadian interest rate is 2% per year. You have 1.25 million CAD dollars to invest. You decide to convert it into USD with the spot rate and use the Covered Interest Arbitrage to make a profit. Questions: a) Calculate the amount of US dollars you will have in one year, including interest income, by converting CAD in spot rate and invest in US interest rate: b) Calculate the amount of Canadian dollars you will have in one year by converting the US dollars back to CAD using the forward rate; c) What's the higher profit in CAD from this Covered Interest Arbitrage

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