a)Jade Smith is a foreign exchange trader for a bank in New York. He has $1 million for a short-term money market investment and he faces the following quotes:(Assuming there are 360 days a year)

Spot exchange rate (SFr/$)1.28103

-month forward rate (SFr/$)1.2740

5US dollar annualinterest rate4.8%

Swiss franc annualinterest rate3.2%

He wonders whether he should invest in US dollars for 90 daysor make a covered interest arbitrage (CIA) investment in the swiss franc, and what is the profit/loss if he carries out this investment.(7Marks)(b)Using the same values in the table above, Jade decides to seek the full 4.8% return available in the US dollars by not covering his forward dollar receipts an uncovered interest arbitrage (UIA) transaction.What is the maximum expected spot exchange rate (SFr/$) at the end of the 90-dayperiod at whichJadecan avoid losing money?(6Marks).

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