Assume the current spot rate for Canadian dollars (CAD) is 0.76 U.S. dollar (USD) and the one-year forward rate is 0.78 USD. The one-year interest rate is 8% per annum in the U.S. and 7% per annum in Canada. You can borrow up to 760,000 USD or 1,000,000 CAD. For the following questions, round all your answers to four decimal places: (a) Determine whether the interest rate parity (IRP) holds. (5 marks) (b) If the IRP is not holding, show the steps you could take to carry out covered interest arbitrage and compute the arbitrage profit. (10 marks) (c) Explain how the IRP will be restored as a consequence of these covered interest arbitrage activities. (5 marks) (d) Explain the following concepts of purchasing power parity (PPP): the law of one price, absolute PPP and relative PPP. (5 marks)