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Kamada: UIA Japan (B). Takeshi Kamada, Credit Suisse (Tokyo), observes that the yen-dollar spot rate has been holding steady, and that both dollar and yen
Kamada: UIA Japan (B). Takeshi Kamada, Credit Suisse (Tokyo), observes that the yen-dollar 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 associates-and their computer models-are predicting the spot rate to remain close to 118.00=$1.00 for the coming 180 days. Using the same data here, , analyze the UIA potential. Note: From the table information, interest rates for both currencies are annual rates. They should be interpreted as 180-day U.S. dollar interest rate : X% "per annum" and 180-day Japanese yen interest rate : Y\% "per annum." Data table (Click on the following icon in order to copy its contents into a spreadsheet.) The UIA profit potential is %, which tells Takeshi Kamada that he should borrow and invest in the currency, the , to potentially gain on an uncovered basis (UIA). (Round to three decimal places and select from the drop-down menus.) If his expectations about the future spot rate, the one in effect in 180 days, prove correct, Takeshi Kamada generates an uncovered interest arbitrage (UIA) profit of . (Round to two decimal places.) The risk Takeshi is taking is that the spot rate at the end of the period can theoretically be anything, better or worse for his speculative position. A movement will cost him of money. (Select from the drop-down menus.)
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