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A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one...

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Accounting

A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the one-year interest rate is i = 6%. The spot exchange rate is $1.25 = 1.00 and the one-year forward exchange rate is $1.20 = 1.00. Discuss and show how to realize a certain profit via covered interest arbitrage.

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