Explain and diagram the specific steps he must take

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Case: Mr. A a foreign exchange trader in ny is exploring covered interest arbitrage possibilities. He wants to invest $3500,000 or its yen equivalent in a covered interest arbitrage between U.S dollar and Japanese yen. He face the following exchange rate and interest rate quotes.

Spot exchange rate Y141.50/$

90 day dollar interest rate: 6.75%

90 day yen interest rate: 3.25%

90 day forward exchange rateY136.50/$

Question 1: Is there CIA possibility? Answer question first

Question 2: Explain and diagram the specific steps he must take to make a covered interest arbitrage profit. Show currency is for borrowing and which currency is for investment. Show profit in $.

Question 3: If the spot exchange rate is expected to be Y145.80/$. Show an uncovered interest arbitrage profit. Show which currency is for borrowing and which currency is for investment. Show the profit in $.

Reference no: EM133492465

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