Assume that the nominal interest rate in Canada is $5\%$ and the nominal interest rate in the US is also $5\%.$ The current exchange rate is $1\mathrm{.}25$CAD$/$USD and the $1-$year forward exchange rate is $1\mathrm{.}30$CAD$/$USD$.$ Considering the above figures, you intend to make arbitrage profit by doing the following: $($i$)$ borrowing $1,000$ CAD, $($ii$)$ converting CAD to USD, $($iii$)$ investing USD for $1$ year, $($iv$)$ exchanging USD back for CAD in $1$ year, and $($v$)$ returning the CAD loan principal and interest. What will be the outcome of you trade after going through the steps as described above?

options:

Profit of $42$ Canadian dollars

Profit of $42$ US dollars

There is no arbitrage opportunity here $-$ the profit will be $0.$

Loss of $42$ Canadian dollars