13. Luis Pinzon-CIA New York. Luis Pinzon is a for- eign exchange dealer for a bank in New York. He has $1,000,000 (or its Swiss franc equivalent) for a short- term money market investment and wonders if he should invest in U.S. dollars for three months or make a covered interest arbitrage investment in the Swiss franc. He faces the following rates:

a. Where do you recommend Luis invest, and why?

b. What is Luis's rate of return, on an annual basis, on this investment?

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Spot exchange rate: Three-month forward rates SFr.1.2810/$ SH12740/5 Three-month U.S. interest rate: 4.800% p.a. (1.200% per quarter) Three-month Swiss interest rate: 3.200% pa (0800% per quarter)