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22. Rose Lever is a foreign exchange trader for a bank in New York. She observes the following rates: (14 points) Spot exchange rate: SF0.9272/$
22. Rose Lever is a foreign exchange trader for a bank in New York. She observes the following rates: (14 points) Spot exchange rate: SF0.9272/$ 3-month forward rate: 30 points 3-month U.S. interest rate: 2% per annum 3-month Swiss interest rate: 4% per annum a. Please help Ms. Lever identify whether there is an arbitrage opportunity or not by comparing the theoretical forward rate to the forward rate in the market. b. Can you help Ms. Lever form a covered interest arbitrage strategy to generate profit? Please describe each step of the covered interest arbitrage and show the arbitrage profit. If she has to borrow any currency, please borrow 1,000,000. c. Please draw a graph to show the current interest rate difference (vertical axis) and the forward premium or discount (horizontal axis) and then discuss the movement of the current point to an equilibrium point. Make sure that you indicate which action(s) in part b. contribute to the movement
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