Casper Landsten is a foreign exchange trader for a bank in New York. He has $5 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 covered interest arbitrage investment in the Swiss franc. Can he make profit if he faces the following quotes?

Assumptions Value

Arbitrage funds available $5,000,000

Spot exchange rate (SFr./$) 1.2750

3-month forward rate (SFr./$) 1.2634

U.S. dollar 3-month interest rate 5.200%

Swiss franc3-month interest rate 3.700%

SFr. Equivalent SFr. 6,375,000