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 following exchange rate and interest rate quotes. Is CIA profit possible? If so, how?

Arbitrage funds available	$	4,950,000
Spot rate (/$)		118.59
180-day forward rate (/$)		117.84
U.S. dollar annual interest rate		4.805	%
Japanese yen annual interest rate		3.394	%

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Part 1

The CIA profit potential is

enter your response here%,

which tells Takeshi Kamada that he should borrow and invest in the higher yielding currency, to lock in a covered interest arbitrage (CIA) profit.