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Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $
Kamada: CIA Japan (A).Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $
5,100,000 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 | $ | 5,100,000 |
|
| Spot rate (/$) |
| 118.45 |
|
| 180-day forward rate (/$) |
| 117.87 |
|
| U.S. dollar annual interest rate |
| 4.803 | % |
| Japanese yen annual interest rate |
| 3.399 | % |
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