Answer
Arbitrage fund available = $5,000,000
Yen to be borrowed = 5,000,000 * 118.69 = Yen 593450000
Amount invested in dollar = $5,000,000
He should enter into a forward agreement as well.
Amount recieved after 6 months = $5,000,000 * (1+0.04796/2) =$ 5119900
Amount recieved in Yen = 5119900*117.78= Yen 603021822
Amount to be repaid after 6 months = Yen 593450000 * (1+0.03399/2) = Yen 603535682.75
Profit = 603535682.75 - 603021822= Yen 513860.75
He will earn profit of Yen 513860.75