Assume the following information:

Current spot rate of New Zealand dollar $($N$$)=$ $$\mathrm{.}41$

Forecasted spot rate of New Zealand dollar $1$ year from now $=$ $$\mathrm{.}43$

One$-$year forward rate of the New Zealand dollar $=$ $$\mathrm{.}42$

Annual interest rate on New Zealand dollars $=8\%$

Annual interest rate on U$.$S$.$ dollars $=9\%$

Required:

a$.$ Tom is a US investor. Given the information, state clearly all the steps how Tom can take the advantage from

covered interest arbitrage by using $$400,000.(20$ marks$)$

b$.$ Compute the extra return in dollars Tom gets by using the covered interest arbitrage. $(4$ marks