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

4. Suppose that the interest rate on Japanese yen is 7% and the interest rate on U.S. dollar is 9%, respectively. If the spot rate is U $ 142 and the 90-day forward rate is U $ 139,

(a) Where would you invest/borrow? Describe your strategy.

(b) Assuming no transaction costs, what would be your arbitrage profit?

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