what is the percentage profit Hiroshi Nomura could make on 180 covered interest arbitrage?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Hiroshi Nurmata, a foreign exchange arbitrage wants to invest USD500, 000 in a covered interest
arbitrage between USD and JPY. He faces the following exchange rate and interest rate quotes:
Spot exchange rate
JPY124/USD
180-day forward exchange rate JPY120/USD
180- day USD interest rate
180-day JPY interest rate
5 percent
1 percent
what is the percentage profit Hiroshi Nomura could make on 180 covered interest arbitrage?
Transcribed Image Text:Hiroshi Nurmata, a foreign exchange arbitrage wants to invest USD500, 000 in a covered interest arbitrage between USD and JPY. He faces the following exchange rate and interest rate quotes: Spot exchange rate JPY124/USD 180-day forward exchange rate JPY120/USD 180- day USD interest rate 180-day JPY interest rate 5 percent 1 percent what is the percentage profit Hiroshi Nomura could make on 180 covered interest arbitrage?
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