James Clark is a currency trader with Wachovia. He notices the following quotes:

Required:

a$.$ Is the interest rate parity holding? You may ignore transaction costs.

b$.$ What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $$1,000,000.$ Compute

the arbitrage profit.

Complete this question by entering your answers in the tabs below.

Required B

What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $$1,000,000.$ Compute

the arbitrage profit.

Note: Round off the final answer to nearest whole dollar.

What steps should be taken to make arbitrage profit?

Arbitrage profit

Borrow at the dollar interest rate and invest at the SwIss tranc interest rate.

Hedge exchange rate risk by buying Swiss francs forward.

Borrow at the dollar interest rate and invest at the Swiss franc rate. Hedge

exchange rate risk by selling Swiss francs forward.

Borrow at the Swiss franc interest rate and invest at the dollar interest rate.

Hedge exchange rate risk by buying Swiss francs forward.

Borrow at the Swiss franc interest rate and invest at the dollar interest rate.

Hedqe exchange rate risk by selling Swiss francs forward.