Kamada: UIA Japan$($B$).$Takeshi$$ Kamada, Credit Suisse$($Tokyo$),$ observes that the$/$$ spot rate has been holding$$ steady, and that both dollar and yen interest rates have remained relatively fixed over the past week. Takeshi wonders if he should try an uncovered interest arbitrage$($UIA$)$ and thereby save the cost of forward cover. Many of$$ Takeshi's research associateslong dashand their computer modelslong dashare predicting the spot rate to remain close to $118\mathrm{.}00/$$ for the coming $180$ days. Using the data$$ below, analyze the UIA potential.

Arbitrage funds available

$

$5,050,000$

Spot rate $(/$$$)$

$118\mathrm{.}65$

$180-$day forward rate $(/$$$)$

$117\mathrm{.}78$

Expected spot rate in $180$ days $(/$$$)$

$118\mathrm{.}00$

U$.$S$.$ dollar annual interest rate

$4\mathrm{.}803$

$\%$

Japanese yen annual interest rate

$3\mathrm{.}399$

$\%$

Question content area bottom

Part $1$

The UIA profit potential is

$$

enter your response here$\%,$ which tells Takeshi Kamada that he should borrow

yen

and invest in the$$

higher

yielding$$ currency, the

U$.$S$.$ dollar

$,$ to potentially gain on an uncovered basis$($UIA$).($Round to three decimal places and select from the$$ drop$-$down menus.$)$