You are a currency trader with $1,000,000 (or the euro-equivalent amount) of available funds to borrow for one year. You arrive at work this morning and see the following data from Thomson Reuters on your computer screen:

Spot exchange rate $1.00 per ?

One-year forward rate $1.01 per ?

Dollar one-year interest rate 2.10%

Euro one-year interest rate 1.05%

Note: Refer to the image below in order to answer several of these questions.

a. Which of the strategies below would you implement to exploit the arbitrage opportunity and recognize your profits in dollars immediately(use Roman numerals in your answer) ?

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b. What would be your arbitrage profits? Do not round intermediate results and express your final answer (in dollars) to two decimal places.

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