Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S₀ = spot rate; F₁ = one-year forward rate; R_F = foreign country risk-free rate; and R_US = U.S.risk-free rate.

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Covered interest arbitrage involves using forward contracts to lock in a future exchange rate while taking advantage of interest rate differentials between two countries. In this case, the arbitrageur would borrow $1 in the US at the risk-free rate (1 + R_US), convert it to foreign currency at the current spot rate (S₀), invest the foreign currency in the foreign risk-free rate (1 + R_F), and then enter into a forward contract (F₁) to sell the foreign currency and convert it back to US dollars at a future date. The formula that represents this scenario is B: $1 × S₀ × (1 + R_F)/F₁ - $1 × (1 + R_US).

Which One of the Following Formulas Illustrates the Mechanics of Covered