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7 Answer a Please explain where are For six months, r SFr => 1.50% and r $ => 1.75%. came from? I don't understand this
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Answer a
Please explain where are "For six months, rSFr => 1.50% and r$ => 1.75%." came from? I don't understand this part.
Jason Smith is a foreign exchange trader. At a point in time, he noticed the following quotes. Spot exchange rate $:SFr = 1.6627 Six-month forward exchange rate $:SFr = 1.6558 Six-month 3 interest rate 3.5% per year Six-month SFr interest rate 3.0% per year a. Ignoring transaction costs, was the interest rate parity holding? b. Was there an arbitrage possibility? If yes, what steps would have been needed to make an arbitrage prot? Assuming thatjason Smith was authorized to work with $1 million for this purpose, how much would the arbitrage prot have been in dollarsStep by Step Solution
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