Question
4. UIA .Susan Prescott, using the same values and assumptions as in the previous question, now decides to seek the full 2.600% return available in
4.UIA .Susan Prescott, using the same values and assumptions as in the previous question, now decides to seek the full 2.600% return available in US dollars by not covering her forward dollar receipts -- an uncovered interest arbitrage (UIA) transaction. Assess this decision. | ||||||||
Assumptions |
| Value |
|
|
| SFr. Equivalent |
| |
Arbitrage funds available |
| $1,000,000 |
|
|
| SFr.994,000 |
| |
Spot exchange rate (SFr./$) |
| .9940 |
|
|
|
|
| |
3-month forward rate (SFr./$) |
| .9910 |
|
|
|
|
| |
Expected spot rate in 90 days (SFr./$) | .9940 |
|
|
|
|
| ||
U.S. dollar 3-month interest rate |
| 2.600% pa |
|
|
|
|
| |
Swiss franc3-month interest rate | 1.600% pa |
|
|
|
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