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Determining the profit in yen from the trade

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Reference no: EM132465647

Takeshi Kamada, Credit Suisse (Tokyo), observes that the ¥/$ spot rate has been holding steady, and both dollar and yen interest rates have remained relatively fixed over the past week. Takeshi wonders if he should try an uncovered interest arbitrage (UIA) and thereby save the cost of forward cover. Many of Takeshi's research associates -- and their computer models -- are predicting the spot rate to remain close to ¥118.00/$ for the coming 180 days. What would be the profit in Yen from the trade?

Assumptions   Value

Arbitrage funds available   $5,000,000

Spot rate (¥/$)                          118.19

180-day forward rate (¥/$)         117.11

Expected spot rate in 180 days (¥/$)            118.00

180-day U.S. dollar interest rate   4.800%

180-day Japanese yen interest rate 3.40%

Reference no: EM132465647

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