Question
Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 or its yen equivalent,
Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 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.Is CIA profit possible? If so, how?
| Assumptions |
| Value | ||
| Arbitrage funds available |
| $5,000,000 | ||
| Spot rate (/$) |
|
|
| 118.60 |
| 180-day forward rate (/$) |
| 117.80 | ||
| 180-day U.S. dollar interest rate |
| 4.800% | ||
| 180-day Japanese yen interest rate | 3.400% | |||
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Finance Led Capitalism Shadow Banking Re Regulation And The Future Of Global Markets
Authors: Robert Guttmann
1st Edition
1137398566, 978-1137398567
