Question: A U . S . - based currency dealer has good credit and can borrow $ 1 , 0 0 0 , 0 0 0

A U.S.-based currency dealer has good credit and can borrow $1,000,000 or its equivalent in euros for one year. The one-year interest rate in the U.S. is i$=2% and in the euro zone the one-year interest rate is i=6%. The spot exchange rate is $1.25/ and the one-year forward exchange rate is $1.20/1. Show how to realize a dollar profit via covered interest arbitrage.

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