Use the following data for question 22 to 24. Rick, a trader in Los Angeles, has $1 million to trade with and the following information: The current spot exchange rate is 108.00 Yen per USD, the 1-year forward rate is Yen102/$; the US$ rate is 3.00% per annum, and the Yen interest rate is 1.00% per annum. Suppose Rick is weighting the following two trading strategies: Strategy 1: Simply keep the funds in a U.S. bank for 1 year to earn interests in US$, Strategy 2: Convert US$ to Yen on the spot market then immediately save the Yen to start earning the interest in Yen. Meanwhile, buy the appropriate amount of 1-year forward contract so that he can convert all the principal and interest in Yen back to US$ 1 year later.

How much Rich will have one year later by following strategy 2?

Suppose Rick has no capital at all, but he can borrow 1 million US$ from a U.S. lender by paying the lender current interest rates at 3%, is there a chance for Covered Interest Arbitrage? If yes, how much is the profit?

Using the covered interest rate arbitrage formula, can you determine what should be the U.S. interest rate that eliminates the covered interest rate arbitrage opportunity, given the Yen interest rate, remains at 1.00%, and the current spot the exchange rate remains at Yen108.00/$ and the 1-year forward rate remains at Yen102.00/$?