Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland.

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Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland. An FI can borrow

(by issuing CDs) or lend (by purchasing CDs) at these rates.

The spot rate is $1.02/Sf. (LG 9-7)

a. If the forward rate is $1.08/Sf, how could the bank arbitrage using a sum of $1 million? What is the spread earned?

b. At what forward rate is this arbitrage eliminated?

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ISE Financial Markets And Institutions

ISBN: 9781265561437

8th International Edition

Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts

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Question Posted: Jul 25, 2024 10:00 AM

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Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland.

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ISE Financial Markets And Institutions

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