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Hiroshi Nurmata, a foreign exchange arbitrage wants to invest USD800,000 in a covered interest arbitrage between USD and JPY. He faces the following exchange rate
Hiroshi Nurmata, a foreign exchange arbitrage wants to invest USD800,000 in a covered interest arbitrage between USD and JPY. He faces the following exchange rate and interest rate quotes:
Spot exchange rate | JPY124/USD |
180-day forward exchange rate | JPY123/USD |
180-day USD interest rate | 3 percent |
180-day JPY interest rate | 1 percent |
Calculate the percentage profit Hiroshi Nurmata could make on 180-day covered interest arbitrage.
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