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6. The following bid and offer spot and 3-month forward exchange rates are shown for the Switzerland franc (CHF) against the U.S. dollar (USD). Bid
6. The following bid and offer spot and 3-month forward exchange rates are shown for the Switzerland franc (CHF) against the U.S. dollar (USD). Bid Offer Mid SPOT 3-mo forward CHF 1.45/USD CHF 1.41/USD CHF 1.47/USD CHF 1.43/USD CHF 1.46/USD CHF 1.42/USD Also, the following offer and bid bank annualized interest rate, based on 3-month maturities, are shown for the CHF and USD. Annualized (in decimals) Deposit Rate Borrowing Rate Mid Swiss Franc U.S. Dollar 0.045 0.050 0.050 0.055 0.0475 0.0525 (a) Show the self-financing riskless covered interest arbitrage that's possible in this market, starting the analysis by borrowing 1 million units of the currency to be borrowed. (Determine which currency to borrow by examining the relationship between the mid spot and forward exchange rates and the interest rates)
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