Question
A new MBA working at Hopeful Enterprises, has identified what looks like a good opportunity to take advantage of interest rate differentials for his firm.
A new MBA working at Hopeful Enterprises, has identified what looks like a good opportunity to take advantage of interest rate differentials for his firm. This hardworking new MBA sees that interest rates in Australia are currently 0.75% (for a 6 month period) while in Japan the rates are an incredible 0.15%. The current exchange rates are: $.00832/Yen and $0.77/Australian $ (A$) with the current cross rate = 92.27 Yen/A$. If our favorite MBA is knows that he can borrow up to the equivalent of $5mm US, how would he take advantage of this differential? Assume that interest rates do not change over the 6 month period.
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