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Suppose the spot exchange rate is $1.5335/1 and the two-month forward exchange rate is $1.4949/1. The interest rate is 5.8% per annum in the U.S.

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Suppose the spot exchange rate is $1.5335/1 and the two-month forward exchange rate is $1.4949/1. The interest rate is 5.8% per annum in the U.S. and 8.8% per annum in Germany. Assume that you can borrow as much as $1,500,000 or 1,000,000 a. Is CIP satisfied or violated? Explain and show your work b. If violated, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit

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