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The spot exchange rate is JPY 117/$, and the twelve-month forward exchange rate is JPY 112/$. The annual interest rates are 5.5% in the US

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The spot exchange rate is JPY 117/$, and the twelve-month forward exchange rate is JPY 112/$. The annual interest rates are 5.5% in the US and 0.40% in Japan. Assume that you can borrow as much as $1,000,000 or an equivalent in Japanese yen. 1. Determine whether the interest rate parity is currently holding. 2. If the IRP is not holding, where would you borrow to carry out covered interest arbitrage? 3. Determine the arbitrage profit. Hint: First, convert indirect quotes into direct quotes and then solve

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