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The interest rate in Japan is 2% and the interest rate in the US is 4%. The spot exchange rate is 100 per dollar and
The interest rate in Japan is 2% and the interest rate in the US is 4%. The spot exchange rate is 100 per dollar and the one year ahead forward rate is 95 per dollar. What is the profit made via covered interest arbitrage if you start by borrowing $1,000 and investing in Japan? Assume borrowing and lending rates are identical. State the profit in dollars. Report the answer without the $ sign.
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