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A US investor sees an arbitrage opportunity in the foreign exchange markets.The spot exchange rate between Swiss Franc and US Dollar is 1.0404 ($ per

A US investor sees an arbitrage opportunity in the foreign exchange markets. The spot exchange rate between Swiss Franc and US Dollar is 1.0404 ($ per CHF). Assume that continuously compounded interest rates in the United States and Switzerland are 0.25% and 0%, respectively. The 3-month forward foreign exchange price is 1.0300 ($ per CHF).

a) What is the theoretically correct forward price?

b) What is the investor's total profit (in CHF), assuming he starts by borrowing CHF 1,000?

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