Kamada: CIA Japan(A).TakeshiKamada, a foreign exchange trader at Credit Suisse(Tokyo), is exploring covered interest arbitrage...
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Kamada: CIA Japan(A).TakeshiKamada, a foreign exchange trader at Credit Suisse(Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,050,000 or its yenequivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Is CIA profitpossible? Ifso, how?
Arbitrage funds available $5,050,000
Spot rate (/$) 118.53
180-day forward rate (/$) 117.87
U.S. dollar annual interest rate 4.809%
Japanese yen annual interest rate 3.399%
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