The 1-year risk-free interest rate of investments in US dollars is rusD = 1.5%. The 1-year risk-free interest rate of investments in Canadian dollars is read = 3%. The current (spot) exchange rate between the two currencies is 1.4: the price of 1 USD is 1.4 CAD. The 1-year forward price of 1 USD is 1.41 CAD. You can trade in 1-year risk-free discount bonds denominated in both US and Canadian dollars, in the forward contract to buy 1 USD 1 year from now, and in the spot foreign exchange market, where you can buy and sell USD. Consider the following strategy: 1. Borrow x USD at 1.5% today, which means that the total loan repayment obligation after a year would be (1 + 1.5%) x USD. 2. Convert y USD into CAD at the spot rate of 1.4. 3. Lock in the 3% rate on the deposit amount of 1.4 y CAD, and simultaneously enter into a forward contract that converts the full maturity amount of the deposit into USD at the one-year forward rate of USD = 1.41 CAD. 4. After one year, settle the forward contract at the contracted rate of 1.41. Suppose the above arbitrage strategy generates 100 USD today and nothing otherwise, please solve for x and y (a) x = (b) y = The 1-year risk-free interest rate of investments in US dollars is rusD = 1.5%. The 1-year risk-free interest rate of investments in Canadian dollars is read = 3%. The current (spot) exchange rate between the two currencies is 1.4: the price of 1 USD is 1.4 CAD. The 1-year forward price of 1 USD is 1.41 CAD. You can trade in 1-year risk-free discount bonds denominated in both US and Canadian dollars, in the forward contract to buy 1 USD 1 year from now, and in the spot foreign exchange market, where you can buy and sell USD. Consider the following strategy: 1. Borrow x USD at 1.5% today, which means that the total loan repayment obligation after a year would be (1 + 1.5%) x USD. 2. Convert y USD into CAD at the spot rate of 1.4. 3. Lock in the 3% rate on the deposit amount of 1.4 y CAD, and simultaneously enter into a forward contract that converts the full maturity amount of the deposit into USD at the one-year forward rate of USD = 1.41 CAD. 4. After one year, settle the forward contract at the contracted rate of 1.41. Suppose the above arbitrage strategy generates 100 USD today and nothing otherwise, please solve for x and y (a) x = (b) y =