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Currently, the spot exchange rate is $1.50/Euro and the 3-month forward exchange rate is $1.49/Euro. The 3-month interest rate is 4 percent per annum in

Currently, the spot exchange rate is $1.50/Euro and the 3-month forward exchange rate is $1.49/Euro. The 3-month interest rate is 4 percent per annum in Canada and 5 percent per annum in Europe. Assume you can borrow as much as $1, 500,000 or Euro 1,000,000. Determine whether interest rate parity is currently holding. If IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. Explain how IRP will be restored as a result of covered arbitrage activities

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