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Giulia Aurora, a foreign trader at Credit Suisse (Switzerland) is exploring covered interest arbitrage possibilities. He wants to invest $10 million or its Swiss Francs
Giulia Aurora, a foreign trader at Credit Suisse (Switzerland) is exploring covered interest arbitrage possibilities. He wants to invest $10 million or its Swiss Francs (SF) equivalent, in a covered interest arbitrage between U.S. dollars and Swiss Francs. He faced the following exchange rate and interest rate quotes. What should the 90-day forward rate be to achieve interest rate parity? Assume all else remain unchanged (rounded) Arbitrage funds available $10 million Spot rate (SF/$) 0.99 90-day forward rate (\/$) 0.98 90-day U.S. dollar interest rate 4.00% 90-day Swiss Franc interest rate 2.75%
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