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4. IRP and covered interest arbitrage (2 points): One year US interest rate = 3%, and one-year Japan interest rate = 1%. If Japanese Yen

4. IRP and covered interest arbitrage (2 points): One year US interest rate = 3%, and one-year Japan interest rate = 1%. If Japanese Yen is at a premium of 1%, would a covered interest arbitrage work for the Japanese investor? If they start with Yen 10m, how much profit would they make?

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