A B C D E F G H I J K 2 Problem 6.7 Takeshi Kamada -- CIA Japan (A) 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 freed the following exchange rate and interest rate quotes. Is CIA profit possible? If so, how? Yen Equivalent 590,000,000 Assumptions Arbitrage funds available Spot rate (\/S) 180 day forward rate (V/S) 180 day U.S. dollar interest rate 180-day Japanese yen interest rate Value $5,000,000 118.00 117.00 6.000% 4.000% This tells Takeshi Kamada that he should borrow yen and invest in the higher yielding currency, the U.S. dollar, to lock- in a covered interest arbitrage (CIA) profit. Page 1 US dollar interest rate (18 days) 6.000 1.0300 Spot (Y/S) > 180 days Forward-180 (S) 590,000,000 Japanese yen 1.0200 601,800,000 b-a STIRI 4.000% Japanese yen interest rate (180 days)