Question: The current spot rate is C$1.362 / US$ and the one-year forward rate is C$1.371 / US$. The nominal risk-free rate in Canada is 6

The current spot rate is C$1.362 / US$ and the one-year forward rate is C$1.371 / US$. The nominal risk-free rate in Canada is 6 percent while it is 3.5 percent in the U.S. Assuming U.S. to be the home country, answer the following questions:

a) Is there an arbitrage opportunity available? Show your workings.

b) If your answer to i) is yes, show the amount and currency of arbitrage profit if you start with US$ 1,000,000. What do you call this profit?

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