QUESTION 11

1. Akemi Yamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage (CIA) possibilities. She wants to invest $900,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. She faced the following exchange rate and interest rate quotes.

   Assumptions	Value
   Arbitrage funds available	$900,000
   Spot rate (/$)	105.46
   180-day forward rate (/$)	104.75
   180-day U.S. dollar interest rate	4.80%
   180-day Japanese yen interest rate	3.40%

   What is the CIA profit potential (%) [to 4-decimal place] the difference in interest rates and the forward discount rate?