month forward exchange rate is 0.7813/$. The three-month interest rate is 5.6 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or 800,000. a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit. b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. In the October 23, 1999, issue, The Economist reports that the interest rate per annum is 5.93 percent in the United States and 70.0 percent in Turkey. Why do you think the interest rate is so high in Turkey? On the basis of the reported interest rates, how would you predict the change of the exchange rate between the U.S. dollar and the Turkish