Help please?

Question

23. 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. Show how to realize a certain profit via covered interest arbitrage.

A. Borrow $1,000,000 at 2%. Trade $1,000,000 for €800,000; invest at i€ = 6%; translate proceeds back at forward rate of $1.20 = €1.00, gross proceeds = $1,017,600.
B. Borrow €800,000 at i€ = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 2% for one year; translate €848,000 back into euro at the forward rate of $1.20 = €1.00. Net profit $2,400.
C. Borrow €800,000 at i€ = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 2% for one year; translate €850,000 back into euro at the forward rate of $1.20 = €1.00. Net profit €2,000.
D. Answers c) and b) are both correct

Answer 1

Why do folks bring math problems to us?

This is a hypothetical. For instance today one dollar buys a tad bit below 0.69 euro. If you are figuring on a $1m vs. 800k euro equivalency, then something is at play besides exchange rates (and the age of the question).

(BTW, a good multiple choice, or multiple guess in your case, has ONE true answer, so D is suspicious, intrinsicly saying there are two correct answers--which sometimes puts a logical conflict into play if your instructions say to select the BEST answer, whereupon you need to evaluate whether B is better than C or if C is better than B--one more point, when selecting from a range, such as with answer D, the choices are commonly given in alphabetic order, B and C, which again gives a logical query, is there something about C that make it better than B, therefore giving a hint that C is a better answer)