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Just need the answer for Takeshi Kamada generates a CIA profit of: (all other answers are correct) Kamada: CIA Japan (A). Takeshi Kamada, a foreign
Just need the answer for "Takeshi Kamada generates a CIA profit of:
(all other answers are correct)
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? $ 4,900,000 118.43 Arbitrage funds available Spot rate (/$) 180-day forward rate ($) U.S. dollar annual interest rate Japanese yen annual interest rate 117.86 4.804 % 3.395 % O The CIA profit potential is - 0.442 %, 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 by investing in the higher interest rate currency, the dollar, and simultaneously selling the dollar proceeds forward into 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.)Step by Step Solution
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