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12. Casper LandstenCIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc

12. Casper LandstenCIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent) for a short-term money market investment and wonders whether he should invest in U.S. dollars for three months or make a CIA investment in the Swiss franc. He faces the following quotes:

13. Casper LandstenUIA. (B) Casper Landsten, using the same values and assumptions as in problem 12, decides to seek the full 4.800% return available in U.S. dollars by not covering his forward dollar receiptsan uncovered interest arbitrage (UIA) transaction. Assess this decision.

Arbitrage funds available $1,000,000

Spot Rate(SFr/$)

1.2810

3-Month forward rate(SFr/$)

1.2740

US-dollar 3-Month interest rate

4.800%

Swiss Franc 3-Month interest rate

3.200%

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