Amount of transaction: $US 100 million

Term of the Transaction: 102 days

Two Funding alternatives from Banks with Loanable Funds:

a.) Tokyo - Current Interest Rate on Yen Loans = 1.00% per annum Assume that the Current en Spot Rate=116.2

102 Day Forward Rate = $US 1.00 = en 116.00

b.) New York branch Current $US Interest Rate on $US Loans 2.00% per annum

Two Investing alternatives:

a.) Citi N.A. Certificate of Deposit 102 day 3.95% per annum on Eurodollar deposits.

b.) Standard Bank Certificate of deposit in South African Rand 6.85% per annum Current ZAR rate vs. $US is as noted in the table on page 1 of the exam. Forward rate in 102 days = $US 1.00 = ZAR 18.00

What you have to do:

On the next page, draw two Froot Loop diagrams one for funding and one for investing - to engineer a covered Yen Carry Trade transaction show the transaction that maximizes the profit opportunity (or the one with minimum loss if you do not see a profitable opportunity).