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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 4,950,000
Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest 4,950,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the followng exchange rate and interest rate quotes Is CIA profit possible? If so, how? $ 4,950,000 Arbitrage funds available Spot rate (/S) 180-day forward rate ($) U.S. dollar annual interest rate Japanese yen annual interest rate 118.45 117.85 4.806 % 3.397 % The CIA profit potential is 1%, which tells Takeshi Kamada that he should borrow and invest in the higher yielding currency 1, to lock in a covered interest arbitrage (CIA) profit. (Round to three decimal places and select from the drop-down menus.)
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