In the interest rate market, you are given annual interest rates of 4 percent in the United States and 7 percent in Japan. The interest rates are continuously compounded. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. In the foreign currency market, at time t=0 (Now), the spot rate is JPY 125 per one USD. And the one-year forward exchange rate is USD 0.0077 per one JPY.

If there is an arbitrage opportunity, then what should be the FI's arbitrage strategy at time t=0 (now)?

S1) In the US Interest Rate (bond) market, FI will["Borrow", "Lend", "Do Nothing"] U.S. dollar for one-year.

S2) In the Japanese Interest Rate (bond) market, FI will ["Borrow", "Lend", "Do Nothing"] Japanese yen for one-year.

S3) In the currency market, FI will ["Buy", "Sell", "Do Nothing"] U.S. dollar at the spot exchange rate.

S4) In the currency market, FI will enter into a forward exchange rate agreement, whereby, it will ["Buy", "Sell", "Do Nothing"] Japanese yen one-year from now.