Given the following exchange rates and interest rates for $ and .

(1) Determine if covered interest arbitrage opportunity exists. (SHOW YOUR WORK!)

(2) Show clearly in a CASH FLOW TABLE FORMAT the transactions involved and the resulted cash flow from each transaction at each time period. Assume that you can borrow up to either $1,000,000 or 100,000,000.

Bid Ask

S(/$) 103.23 103.89

F₁₂(/$) 101.39 101.48

Annual dollar interest rate (%) 3.5 3.75

Annual yen interest rate (%) 1.5 1.75