Quotes for the dollar and euro are as follows: Spot contract midpoint S0/$ = 0.8890/$ One-year forward

Question:

Quotes for the dollar and euro are as follows:
Spot contract midpoint S0€/$ = €0.8890/$
One-year forward contract midpoint F1€/$ = €0.8960/$
One-year Eurodollar interest rate i$ = 3% per year
a. Your newspaper does not quote one-year interest rates on euros. Make your own estimate of i€.
b. Suppose that you can trade at the prices for S€/$, F€/$ and i$ just given and that you can also either borrow or lend at a Thai interest rate of i€ = 4% per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?
Eurocurrency
Eurocurrency is currency deposited by national governments or corporations, outside of its home market. Commonly it is currency held in banks located outside of the country which issues the currency. Eurocurrency is when an institution uses money...