You are given that the current annual interest rates are 10 percent in the United States and 4 percent in Japan. The interest rates are continuously compounded. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot exchange rate (at t=0) is USD 0.0080 per one JPY. In addition, at time t=0, the one-year forward exchange rate in the currency market is JPY 118.000 per one JPY.

If there is an arbitrage opportunity, then what should be the FI's arbitrage strategy at time t=0 (now)?

S1) In the US interest rate (bond) market, FI will ["Borrow", "Lend", "Do Nothing"] for one-year.

S2) In the currency market, FI will ["Buy", "Sell", "Do Nothing"] US dollar at the spot exchange rate.

S3) In the Japanese interest rate (bond) market, FI will ["Borrow", "Lend", "Do Nothing"] for one-year.

S4) In the currency market, FI will enter into a forward exchange rate agreement, whereby, it will ["Buy", "Sell", "Do Nothing"] Japanese yen one-year from now.