Question 5 James Zhang, a foreign exchange trader at J. P Morgan Chase, can borrow USD800,000, or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. Spot exchange rate: JPY124/USD Six-month forward exchange rate: JPY123/USD 180-day USD interest rate: 1.5% 180-day JPY interest rate: 0.5% 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. Calculation & Conclusion: Time=0 1) 2) 3) 4) Time = 1 1) 2) 3) Profit in U.S.dollar T T T Arial 3 (12pt) TEE