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Use this data for the following questions: Spot (CAD/USD) =1.75 1 year forward (CAD/USD) =1.80 1-year Canadian interest rate of 8% in Canadian dollars (CAD) 1 year US interest rate of 4% in US Dollars (USD)

The first step in the arbitrage trade is to borrow in_______ at the rate of _____%.

The next step is to convert the borrowed money into _____and invest it an account offering_____% interest rate.

In 1 year, you will have the proceeds from your loan. You will convert that at:

A. The forward rate of 1.8

B. The spot rate of 1.75

C. The spot rate in 1 year