You want to invest 800,000 for one year. The one-year interest rate in the U.S. is is 2% and in the euro zone the one-year interest rate is ic-696. The spot exchange rate is $1.25 = 1.00 and the one-year forward exchange rate is $1.20 1.00. Show how to realize a risk-free profit via covered interest arbi- trage. a) Borrow $1,000,000 at 2%. Trade $1,000,000 for 800,000, invest at i 696; translate proceeds back at forward rate of $1.20-1.00, gross pro- ceeds = $1,017,600. Borrow 800,000 at ic-6%; translate to dollars at the spot, invest in the U.S. at is # 296 for one year; translate 848,000 back into euro at the for- ward rate of $1.20 1.00. Net profit $2,400. Borrow 800,000 at i-696; translate to dollars at the spot, invest in the U.S. at is 296 for one year; translate 850,000 back into euro at the for- ward rate of $1.20 1.00. Net profit 2,000. b) c) d) Answers c) and b) are both correct