Homework:chp6homework1fall2021

Question 2, Problem 6-7 (algorithmic)

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Takeshi 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 (/$)		118.55
180-day forward rate (/$)		117.87
U.S. dollar annual interest rate		4.808	%
Japanese yen annual interest rate		3.392	%

The CIA profit potential is........%,

which tells Takeshi Kamada that he should borrow:

A-the Japanese yen

B-the U.S. dollar

and invest in the higher yielding currency,

A-the Japanese yen

B-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.)