From the table information, interest rates for both currencies are annual rates. They should be interpreted as U.S. dollar 3-month interest rate: X% "per annum" and Swiss franc 3-month interest rate : Y% "per annum."

Peder

MuellerUIA

(B).Peder Mueller is a foreign exchange trader for a bank in New York. Using the values and assumptions here,

LOADING...

,

he decides to seek the full

4.797%

return available in U.S. dollars by not covering his forward dollar

receiptsan

uncovered interest arbitrage (UIA) transaction. Assess this decision.

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Part 1

The uncovered interest arbitrage (UIA) profit amount is

$enter your response here.

Arbitrage funds available	USD900,000
Spot exchange rate (CHF=USD1.00)	1.2806
3-month forward rate (CHF=USD1.00)	1.2744
Expected spot rate in 3 months (CHF=USD1.00)	1.2697
U.S. dollar 3-month interest rate	4.797%
Swiss franc 3-month interest rate	3.196%