Question
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
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.
Question content area bottom
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% |
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