Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage...
70.2K
Verified Solution
Link Copied!
Question
Finance
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?
Arbitrage funds available
$
5,000,000
Spot rate (/$)
118.46
180-day forward rate (/$)
117.86
U.S. dollar annual interest rate
4.801
%
Japanese yen annual interest rate
3.396
%
The CIA profit potential is %,which tells Takeshi Kamada that he should borrow
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.)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
