You as a US . investor find the current annual interest rate in the U.S is 306 and the annual interest rate in Canada is 56 . The spot exchange rate for Canadian dollar is $0 9500 , the 90 - day Canadian dollar forward exchange rate is 50 94800 ( 1 ) Based on covered interest rate parity theory , what is the implied 90 - day forward rate of the Canadian dollar ? Is there any arbitrage opportunity to trade the forward contract on Canadian dollars ? ( 2 ) Explain your arbitrage strategy using the forward contract and the investment in the money market ? ( 3 ) How much arbitrage profit can you make if you can borrow up to $1 million US dollars ( Assume there is no transaction cost in the money market , so the borrowing interest rate equals the lending interest rate . )