Suppose the six-month interest rates in Japan and the United States are 7% per year, compounded semi-annually, and 9% per year, compounded semi-annually, respectively. The spot rate is ¥142 : $1 (i.e., ¥/$ 142), and the 6 month forward rate is ¥139 : $1.
Given this fact situation:
a) Where should you invest?
b) Where should you borrow?
c) Quantify the arbitrage profit, if any, that can be obtained on a $1 million dollar-equivalent investment?