Question: Suppose that the U . S . interest rate is 4 % , the Japanese interest rate is 3 % , and the yen is

Suppose that the U.S. interest rate is 4%, the Japanese interest rate is 3%, and the yen is selling forward at a premium of 5%. Which of the following is true? Interest rates apply to risk-free government bonds.
Question 20 options:
It is possible to earn a riskless profit by borrowing dollars, converting them to yen, and lending the yen.
It is not possible to make a riskless profit in this situation.
It is possible to make a riskless profit by selling yen on the spot market and buying yen on the forward market.
It is possible to earn a riskless profit by borrowing yen, converting them to dollars, and lending dollars.

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