Quotes for the dollar and euro are as follows:

Spot contract midpoint S₀^EUR/USD = 0.8890/$

One-year forward contract midpoint F₁^EUR/USD = 0.8960/$

One-year Eurodollar interest rate i^USD = 3% per year

a. Your newspaper does not quote one-year Eurocurrency interest rates on EU euros. Make your own estimate of i^EUR.

b. Suppose that you can trade at the prices for S^EUR/USD, F^EUR/USD and i^USD just given and that you can also either borrow or lend at a Thai Eurocurrency interest rate of i^EUR = 4 percent per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?