How much would the arbitrager end up with


Interest rates on one-year instruments denominated in JPY (Japanese Yen) and USD (U.S. Dollar) are 1 percent and 5 percent, respectively. The JPY is currently trading at a rate of S(¥/$) = ¥100/$. The one-year forward rate is F(¥/S) = ¥98/$. Explain how an arbitrager can exploit this situation. If the arbitrager can employ $1,000 (or its equivalent in another currency) toward this strategy, how much would the arbitrager end up with?

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Accounting Basics: How much would the arbitrager end up with
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