In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the United States and Switzerland were 0.25% and 0% per annum, respectively, with continuous compounding. The three-month forward exchange rate was 1.0300 ($ per franc). What arbitrage strategy was possible? How does your answer change if the forward exchange rate is 1.0500 ($ per franc).

To wit, what currency to you borrow? How many of the other currency do you get when you buy it on the spot market? How many of that currency do you have after invested it at the risk free interest rate in that country? How many of the borrowed currency do you win up with after hedging the currency back into the borrowed currency using the forward market? What is the profit after paying back the loan?