Question
Casper Landsten-CIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent)
Casper Landsten-CIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. 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/$) | 1.2810 | ||
3-month forward rate (SFr/$) | 1.2740 | ||
U.S. Dollar annual interest rate | 4.800 | % | |
Swiss franc annual interest rate | 3.200 | % |
The CIA profit potential is
nothing%,
which tells Casper Landsten he should borrow
Swiss francs
U.S. dollars
and invest in the
higher
lower
yielding currency, the
Swiss franc
U.S. dollar
, in order to earn covered interest arbitrage (CIA) profits.(Round to three decimal places and select from the drop-down menus.)
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