Kamada: CIA Japan (A).Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,050,000 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 $ 5,050,000 Spot rate (/$) 118.58 180-day forward rate (/$) 117.88 U.S. dollar annual interest rate 4.807 % Japanese yen annual interest rate 3.391 %

The CIA profit potential is enter your response here%, which tells Takeshi Kamada that he should borrow (the Japanese yen/the U.S. dollar) and invest in the higher yielding currency, (the Japanese yen/the U.S.dollar) , to lock in a covered interest arbitrage (CIA) profit.

Takeshi Kamada generates a CIA profit of enter your response here by investing in the (higher/lower) interest rate currency, the (dollar/yen) , and simultaneously selling the (dollar/yen)

proceeds forward into (dollar/yen) at a forward premium which does not completely negate the interest differential.