The 1-year interest rates in Norway, , is equal to 3%; - The 1-year interest rates in the US, is equal to 1%; - Spot exchange rate is equal to ( ) = 8; - The 1-year forward rate is ( ) = 8.5

Observing the data, you discovered an arbitrage opportunity. Show how to realize a certain profit via covered interest arbitrage. Assume that you can borrow either USD 1,000,000 or NOK 1,000,000 for one year. (Hint: In order to perform a covered interest arbitrage, you borrow in one country and you invest in the other. Thus, you need to decide in which country you borrow, then invest in the other.)