Question
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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