a. Explain Covered Interest Parity Theorem. Derive the fundamental equation of covered interest parity algebraically. Explain it in words.

b. Given:

i(U.S.) = 30-day interest rate in the U.S.A. = 3%

i(J) = 30-day interest rate in Japan = 5%

Spot ER = 130 Yen/US$

30-day Forward Exchange Rate = 143 Yen/US$

Assume you have $US 1,000,000.Where would you invest?Why? Explain by showing your calculations.