solution
Kamada: CIA Japan? (A). Takeshi? Kamada, a foreign exchange trader at Credit Suisse? (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest
?$5,000,000 or its yen? equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Is CIA profit? possible? If? so, how?
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$ |
5,000,000 |
|
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Spot rate (Â¥/$) |
118.49 |
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|
180-day forward rate (Â¥/$) |
117.82 |
||
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U.S. dollar annual interest rate |
4.807 |
% |
|
|
Japanese yen annual interest rate |
3.391 |
% |
The CIA profit potential is ? ?%, which tells Takeshi Kamada that he should borrow the ? and invest in the higher-yielding?currency, ? , to lock in a covered interest arbitrage? (CIA) profit. ?(Round to three decimal places and select from the?drop-down menus.)
Takeshi Kamada generates a CIA profit of ___?___yen¥. by investing in the (higher/lower) interest rate? currency, the (dollar/ yen?), and simultaneously selling the (dollar/yen) proceeds forward into (dollar/yen) at a forward premium which does not completely negate the interest differential. (Round to two decimal places and select from the? drop-down menus.)
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