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

Spot exchange rate

Six$-$month forward exchange rate

Six$-$month Dollar interest rate

Six$-$month Swiss franc interest rate

SFr$1.2059$ per $

SFr$1.1930$ per $

$2\mathrm{.}5\%$ per year

$2\mathrm{.}0\%$ per year

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 $$1,000,000.$ Compute the arbitrage profit.

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

Required $A$

Is the interest rate parity holding? You may ignore traTisaction costs.

Is the interest rate parity holding?