Problem:
Suppose that three-month interest rates (annualized) in Japan and the U.S. are 7% and 9%, respectively. If the spot rate is ¥142:$1 and the 90-day forward rate is ¥139:$1:
Required:
Question: What is the 3 month arbitrage profit?
5.5%
1.7%
2.6%
1.2%
Note: Please explain comprehensively and give step by step solution.