Question
Casper Landsten-UIA (B). Casper Landsten is a foreign exchange trader for a bank in New York. Using the values and assumptions below, he decides to
Casper Landsten-UIA (B). Casper Landsten is a foreign exchange trader for a bank in New York. Using the values and assumptions below, he decides to seek the full 4.805%return available in U.S. dollars by not covering his forward dollar receiptsan uncovered interest arbitrage (UIA) transaction. Assess this decision.
| Arbitrage funds available | $ | 950,000 | |
| Spot exchange rate (SFr/$) | 1.2813 | ||
| 3-month forward rate (SFr/$) | 1.2739 | ||
| Expected spot rate in 90 days (SFr/$) | 1.2698 | ||
| U.S. Dollar annual interest rate | 4.805 | % | |
| Swiss franc annualinterest rate | 3.199 | % |
The uncovered interest arbitrage (UIA) profit amount is
(Round to the nearest cent.)
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Engineering Economy
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
15th edition
978-0132554909
