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Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage...

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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
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