Covered versus uncovered interest arbitrage

On May $31,$ Maria, an American investor, decided to buy three$-$month Treasury bills. She found that the per$-$annum interest rate on three$-$month

Treasury bills is $7\mathrm{.}00\%$ in New York and $9\mathrm{.}00\%$ in Tokyo, Japan. Based on this information and assuming that tax costs and other transaction costs are

negligible in the two countries, it is in Maria's best interest to purchase three$-$month Treasury bills in

$,$ because it allows her to

earn

more for the three months.

On May $31,$ the spot rate for the yen was $$0\mathrm{.}100,$ and the selling price of the three$-$month forward yen was $$0\mathrm{.}099.$ At that time, Maria chose to

ignore this difference in exchange rates. In three months, however, the spot rate for the yen rose to $$0\mathrm{.}102$ per yen.

When Maria converted the investment proceeds back into U$.$S$.$ dollars, her actual return on investment was

As a result of this transaction, Maria realizes that there is great uncertainty about how many dollars she will receive when the Treasury bills mature.

So$,$ she decides to adjust her investment strategy to eliminate this uncertainty.

What should Maria's strategy be the next time she considers investing in Treasury bills?

Exchange large amounts of foreign currency for domestic currency.

Sell enough foreign currency on the forward market to match the anticipated proceeds from the investment.

Avoid investment in foreign institutions.

Had Maria used the covered interest arbitrage strategy on May $31,$ her net return on investment $($relative to purchasing the U$.$S$.$ Treasury bills$)$ in

Japanese three$-$month Treasury bills would be

$($Note: Assume that the cost of obtaining the cover is zero.$)$