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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 $4,900,000

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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 $4,900,000 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? $ 4,900,000 118.48 Arbitrage funds available Spot rate ($) 180-day forward rate (W/S) U.S. dollar annual interest rate Japanese yen annual interest rate 117.83 4.802 % 3.391 % The CIA profit potential is %, which tells Takeshi Kamada that he should borrow and invest in the higher yielding currency, 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 interest rate currency, the simultaneously selling the proceeds forward into at a forward premium which does not completely negate the interest differential. (Round to two decimal places and select from the drop-down menus.) and

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