Business, 27.07.2021 22:10 finedock

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 $4,900,000
Spot rate (¥/$) 118.42
180-day forward rate (¥/$) 117.87
U. S. dollar annual interest rate 4.807%
Japanese yen annual interest rate 3.393%

The CIA profit potential is −0.481%, which tells Takeshi Kamada that he should borrow the Japanese yen and invest in the higher yielding currency, the U. S.dollar, 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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Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exp...

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