Final answer:
To gain arbitrage profit from the interest rate differential between Japan and Brazil, an investor should borrow in Brazil (lower interest rate), convert to Japanese yen at the spot rate, invest in Japan (higher interest rate), and lock in the return with a forward contract at the current forward rate.
Step-by-step explanation:
The student's question pertains to covered interest arbitrage, where an investor seeks to gain a riskless profit by exploiting the interest rate differential between two different countries when the forward exchange rate is mispriced. To achieve arbitrage profit given the Japanese and Brazilian interest rates of 8% and 5%, respectively, and the current one-year JPY forward rate of 0.6217 (with the spot exchange rate at 0.62), one would follow these steps:
Upon completion of these steps for a $1,000,000 investment, you would receive an arbitrage profit. To calculate the exact numbers, use the current exchange rates and interest rates provided, adjusting the investment amount accordingly. The actual calculation methods can involve a lot of precise numerical work and require understanding of financial market dynamics.