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Not financial advice. Numbers are just examples.

0: Buy 10000 USDC with $10000

1: Deposit 10000 USDC on AAVE

2: Borrow 5000 USDT

3: Sell 5000 USDT for 5000 USDC

4: Wait for USDT to drop to $0.5

5: Buy 5000 USDT with 2500 USDC

6: Repay 5000 USDT and get back 10000 USDC

7: Profit: $2500

That won't work if USDC also drops?

Correct. Here I'm assuming USDC is "stable".

If USDC drops (or if USDT rises, for that matter), you might get liquidated.

interest on borrowing? How much it costs to keep the position per year?

Depends on market conditions and the lender you use. Currently around 4% on AAVE. If demand rises this can go up obviously.

Note you do get interest on your deposit so that helps offset it a bit.