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Toshi Numata, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest A$2,000,000 or its yen equivalent,

Toshi Numata, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest A$2,000,000 or its yen equivalent, in a covered interest arbitrage between A$ and Japanese yen. He faced the following exchange rate and interest rate quotes:
Spot rate (/A$) 110.20
180-day forward rate (/A$) 109.80
180-day Aust. dollar interest rate 3.000% per year
180-day Japanese yen interest rate 1.800% per year
The bank does not calculate transaction costs on any individual transaction, because these costs are part of the
overall operating budget of the arbitrage department. Explain and diagram the specific steps Toshi Numata must
take to make a covered interest arbitrage profit.

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