12. James Clark is a currency trader with Wachovia. He notices the following quotes:

a. Is the interest rate parity holding? You may ignore transaction costs.

b. Is there an arbitrage opportunity? If yes, show what steps need to be taken to make arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.

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Spot exchange rate SFr1.2051/$ Six-month forward SFr1.1922/$ exchange rate Six-month dollar interest 2.50% per rate year Six-month Swiss franc 2.0% interest rate year per