Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is...
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Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $4,900,000 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 Spot rate ($) 180-day forward rate ($I$) 4,900,000 118.42 117.87 U.S. dollar annual interest rate 4.803 % Japanese yen annual interest rate 3.393 % and invest in the higher yielding currency, to lock in a covered The CIA profit potential is %, which tells Takeshi Kamada that he should borrow interest arbitrage (CIA) profit. (Round to three decimal places and select from the drop-down menus.) proceeds forward into at a Takeshi Kamada generates a CIA profit of by investing in the interest rate currency, the and simultaneously selling the 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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