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QUESTION 2 (15 MARKS) Tony Fernandes, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make profit

QUESTION 2 (15 MARKS)

Tony Fernandes, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make profit based on the following rates. Explain specific steps that Tony Fernandes must take to make a covered interest arbitrage.

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6-month Canadian interest rate: 6-month Yen interest rate: Spot rate: 6-month Forward Rate 1.60% per annum 2.95% per annum JYP 93.1395/CAD. JYP 93.8380/CAD. CAD = Canadian Dollar JYP = Japanese Yen

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