What is the arbitrage profit in us dollars in one year

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Question: Suppose that the annual interest rate is 4.0 percent in the United States and 2.0 percent in Japan, and that the spot exchange rate is ¥110/$ and the forward exchange rate, with one-year maturity, is ¥115/$. Assume that an arbitrageur can borrow up to $1,000,000 or its equivalent in Japanese yen. If an astute trader finds an arbitrage opportunity, what is the arbitrage profit in US dollars in one year?

Reference no: EM133376998

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