Mr James Lucky is a British investor who expects the Japanese Yen (JPY) to depreciate by 3.15% against GBP over the next year. The interest rate on one-year risk-free bonds is 2.5% in the United Kingdom and 6.25% in Japan. The current exchange rate is GBP:JPY = 155.49.

i) Calculate the foreign currency risk premium from Mr Luckys viewpoint. Provide your workings and full calculations, when answering this question. [5 marks]

ii) Calculate the return on the Japanese risk-free bond from Mr Luckys viewpoint, assuming that his expectations are met. Provide your workings and full calculations, when answering this question.