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1. Suppose that the annual interest rate on Japanese yen is 7% and the annual interest rate on U.S. dollar is 9%, respectively. The spot

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1. Suppose that the annual interest rate on Japanese yen is 7% and the annual interest rate on U.S. dollar is 9%, respectively. The spot rate is 142 and the 90-day forward rate is 139. (a) Does covered interest parity (CIP) hold? Why? (b) Assume you want to invest $1,000,000. Can you make arbitrage profit? Describe your strategy (where you would borrow and where you would invest) and quantify the arbitrage profit

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