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PART B: CIA QUESTION Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $1,000,000
PART B: CIA QUESTION Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $1,000,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes. Assumptions Arbitrage funds available Spot exchange rate (\/$) 1 year forward rate (\/$) US dollar interest rate Japanese Yen interest rate Value $1,000,000 104.00 100.00 | 3% 1% Complete the following table to show how Takeshi can make CIA profit by borrowing _?_ ( or $) and converting it to _? ( or $). Start End $ 1,000,000 Interest rate 3% Pay_? Receive Profit ? > 360 days Forward rate (\/$) Spot rate (\/$) 104 \ ? - Interest rate 1% \_
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