1. Derek Jones, a foreign exchange trader at Charles Schwab, can invest $1 million, or the foreign currency equivalent of the bank's short-term funds, in a covered interest arbitrage with Japan. Using the following quotes, can Derek make a covered interest arbitrage profit? If so, show the steps and calculate the amount of profit in USD.

Arbitrage funds available

$1,000,000

Spot exchange rate (/$)

106.00/$

6-month forward rate (/$)

103.50/$

US dollar 6-month interest rate

4%

Japanese yen 6-month interest rate

2%