For all questions, interest (r) and dividend (d) rates are continuously compounded unless specified otherwise.

CAD interest rate rd = 1.75% (c.c.), USD interest rate rf = 2.75% (c.c.). The spot USD/CAD exchange rate is $1.32.

a) What is the one year forward USD/CAD exchange rate F0,1? Does this mean a stronger or a weaker Canadian dollar (relative to the US dollar)?

b) Suppose someone offers to sell you $1,000,000 U.S. dollars for $1,310,000 Canadian dollars in one year's time. If you agree to this trade, what is the future value (in 1 year) of your expected profit/loss?

c) Suppose instead they offer to buy $1 million USD from you for $1.31 million CAD in one year's time. Construct an arbitrage portfolio (of some amount of USD and some amount of CAD) that will guarantee you a profit.

Help with part c the most use excel or anything and show how it is done.