Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $4,900,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Is CIA profit possible? If so, how? Arbitrage funds available 4,900,000 118.49 Spot rate ($) 180-day forward rate (/$) 117.88 U.S. dollar annual interest rate 4.808 % Japanese yen annual interest rate 3.398 % The CIA profit potential is -0.375 %, 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 interest rate currency, the and 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.) Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $4,900,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Is CIA profit possible? If so, how? Arbitrage funds available 4,900,000 118.49 Spot rate ($) 180-day forward rate (/$) 117.88 U.S. dollar annual interest rate 4.808 % Japanese yen annual interest rate 3.398 % The CIA profit potential is -0.375 %, 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 interest rate currency, the and 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.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Prasanna Chandra

9th Edition

9339222571, 978-9339222574

More Books

Students also viewed these Finance questions

Question

When will advertising be deemed deceptive?

Answered: 1 week ago

Question

Victim/Persecutor/Rescuer positions?

Answered: 1 week ago

Question

=+ (d) Show that Y ,, Y2, ... are independent.

Answered: 1 week ago

Question

Describe three other types of visual aids.

Answered: 1 week ago