An Italian currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the oneyear interest rate is i = 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 euro-denominated profit via covered interest arbitrage.

A. Borrow $1,000,000 at 2%. Trade $1,000,000 for 800,000; invest at i = 6%; translate proceeds back at forward rate of $1.20 = 1.00. Net profit $2,400.

B. Borrow 800,000 at i = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 2% for one year; translate proceeds back at the forward rate of $1.20 = 1.00. Net profit $2,400.

C. Borrow 800,000 at i = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 2% for one year; translate proceeds back at the forward rate of $1.20 = 1.00. Net profit 2,000.

D. Both c) and b)

the answer is C i need to clear explain thanks