Question
Casper Landsten is a foreign exchange tender. He has $1 million (or its Swiss franc equivalent) for a short term money market investment and wonders
Casper Landsten is a foreign exchange tender. He has $1 million (or its Swiss franc equivalent) for a short term money market investment and wonders if he should invest in U.S. dollars for three months, or make a CIA investment in the Swiss franc. He faces the following quotes:
| Arbitrage funds available | $ | 1,000,000 | |
| Spot exchange rate (SFr/$) | 1.2807 | ||
| 3-month forward rate (SFr/$) | 1.2739 | ||
| U.S. Dollar annual interest rate | 4.795 | % | |
| Swiss franc annual interest rate | 3.203 | % |
The CIA profit potential is 0.543%. What is the CIA profit amount in $?
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Multinational Business Finance
Authors: David Eiteman, Arthur Stonehill, Michael Moffett
15th Global Edition
129227008X, 9781292270081
