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You are a European investor who can borrow $1,000,000 or the equivalent amount in euros today. Suppose the spot rate is $1.02/, and the one-year

You are a European investor who can borrow $1,000,000 or the equivalent amount in euros today. Suppose the spot rate is $1.02/, and the one-year forward rate is $1.10/. The annual interest rate is 4 percent in the U.S. and 2 percent in Germany. Check if IRP holds. If it does not hold, set up a covered interest arbitrage. What will be your profit from this arbitrage opportunity in euros?

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