Question
Suppose that the following table contains information on the face value and current price of one-year zero-coupon government bonds in Switzerland and the United
Suppose that the following table contains information on the face value and current price of one-year zero-coupon government bonds in Switzerland and the United Kingdom. Face Value Price Switzerland 1000 Swiss Francs 970.87 Swiss Francs UK 1000 Pounds 952.38 Pounds a) Calculate the nominal interest rate on each of the bonds. b) Suppose that the current exchange rate between the two currencies is 2.50 Francs/Pound, and the futures price (for delivery after one year) is 2.48 Francs/Pound. Construct a zero-investment portfolio that yields a certain profit.
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