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 one-year forward exchange rate is $1.20 = €1.00; what must the spot rate be to eliminate arbitrage opportunities?
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