James Zhang, a foreign exchange trader at J. PMorgan Chase, can borrow USD800,000, or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. Spot exchange rate: JPY125/USD Six-month forward exchange rate: JPY123/USD 180-day USD interest rate: 2% 180-day JPY interest rate: 1% Assume that there is no transaction cost. Explain the specific steps James must take and calculate the profit in U.S. dollar from the covered interest arbitrage. Itemize your answers. Calculation & Conclusion: Time = 0 1) 2) 3) 4) Time = 1 1) 2) 3) Profit in U.S. dollar