Currently, the spot exchange rate is $$0\mathrm{.}76$ per A$ and the one$-$year forward exchange rate is $$0\mathrm{.}72$ per A$$.$ One$-$year interest is $3\mathrm{.}5\%$ in the United States and $4\mathrm{.}2\%$ in Australia. You may borrow up to $$1,000,000$ or A$$1,315,789,$ which is equivalent to $$1,000,000$ at the current spot rate.

Required:

Determine if IRP is holding between Australia and the United States.

If IRP is not holding, explain in detail how you would realize certain profit in U$.$S$.$ dollar terms. What will be your arbitrage profit?

Explain how IRP will be restored as a result of arbitrage transactions you carry out above.