Kamada: CIA Japan (A). Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $4,900,000 or its yen eq covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes: Is CIA profit possible? If so, how? The CIA profit potential is -0.397 %, which tells Takeshi Kamada that he should borrow the Japanese yen and invest in the higher yielding currency, the U.S.dollar arbitrage (CIA) profit. (Round to three decimal places and select from the drop-down menus.) Takeshi Kamada generates a CIA profit of by investing in the higher interest rate currency, the dollar, and simultaneously selling the dollar proceeds forward into yen at a forwar which does not completely negate the interest differential. (Round to two decimal places and select from the drop-down menus.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Arbitrage funds available Spot rate (¥ = $1.00) 180-day forward rate (* = $1.00) 180-day U.S. dollar interest rate 180-day Japanese yen interest rate Print Done $4,900,000 118.46 117.86 4.807% 3.392% to lock in a covere - X

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.