Assumptions Value Arbitrage funds available () YEN 80,000,000 Equivalent arbitrage funds available ($) USD 1,000,000 Spot rate (/$) 80.00 90-day…

a)     Calculate the expected gain in $ from an Uncovered Interest Arbitrage (UIA) strategy using the expected spot rate in 90 days (100Y/USD) predicted by Toshi’s research associates.

b)     The actual spot rate 90 days from today turned out to be72.00 (¥/$) instead of 100 (¥/$) as predicted. Discuss how Toshi’s interest arbitrage strategy in question a) is affected.

Practice exam question, answer needed ASAP.