Swap rate: (1.2890-1.2820) *100%/1.2890 = 0.5431%,which is less than the spread and can be arbitrage.

Euro arbitrage:

Convert the euro into pounds immediately, invest in pounds (5.96875%), sell the principal and interest of pounds, and recover them for a long time. When it matures, the pound investment will be recovered and sold under a long-term contract.

Profit and loss:

In the end, the euro MINUS the opportunity cost of euro investment is the profit.

1000000/ 1.2890 * ( 1+5.96875%) * 1.2820- 1000000 * ( 1+4.5%) = 8932.