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Suppose that three month interest rates (annualized) in Japan and the US are 7% and 9% respectively. If the spot rate yen 142 :$1 and

Suppose that three month interest rates (annualized) in Japan and the US are 7% and 9% respectively. If the spot rate yen 142 :$1 and the 90 day forward rate is the yen 139 : $1 what is the three month arbitrage profit?

A. 5.5%

B. 1.7%

C. 2.6%

D. 1.2%

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