A 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 U.S. is is = 2% and in the euro zone the one-year interest rate is 1 = 6%. The spot exchange rate is $1.25 / and the one-year forward exchange rate is $1.20/ a. Determine whether interest rate parity is currently holding? b. If IRP is not holding, show how to realize a certain profit via covered interest rate arbitrage. Assume you are a dollar-based investor. Show all steps and determine the size of your arbitrage profit. c. Suppose you are a euro-based investor. Show the covered arbitrage process and determine the euro profit amount. d. Explain how IRP will be restored as a result of covered arbitrage activities in detail. A 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 U.S. is is = 2% and in the euro zone the one-year interest rate is 1 = 6%. The spot exchange rate is $1.25 / and the one-year forward exchange rate is $1.20/ a. Determine whether interest rate parity is currently holding? b. If IRP is not holding, show how to realize a certain profit via covered interest rate arbitrage. Assume you are a dollar-based investor. Show all steps and determine the size of your arbitrage profit. c. Suppose you are a euro-based investor. Show the covered arbitrage process and determine the euro profit amount. d. Explain how IRP will be restored as a result of covered arbitrage activities in detail