Suppose that you are the treasurer of IBM and are considering the purchase of U.S. T-bills that yield 1.810%. The spot exchange rate is $1.00 = 100 JPY, and the one year forward rate is $1.00 = 110 JPY. How high must be the interest rate in Japan (on an investment of comparable risk) be before you are willing to consider investing there for one year?
a) 12%
b) 1.12%
c) 7.45%
d) -7.45%