Find and describe the arbitrage opportunity

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Covered Interest Parity with Bid-Ask Quotes

Below are current quotes on Japanese Yen and U.S. Dollar exchange rates and interest rates. Find and describe the arbitrage opportunity, if any. Recall, the bid and ask prices and rates are from the perspective of the market marker. Bid price is the price the market maker is willing to buy and the ask price is the price the market maker is willing to sell. Similarly, the bid rate is the rate the market maker is willing to borrow and the ask rate is the rate the market maker is willing to lend.

JPY/USD            Bid                        Ask

Spot                     113.75               113.95

3-Month            113.60                113.80

3-Month Interest Rate (Compounded Annually) Bid              Ask

JPY                                                                                            1.3125%        1.4375%

USD                                                                                            5.1875%         5.3125%

 
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