Question
Jason works for an American import-export company, located in New York. The main business is dealt between the New York and Geneva in Switzerland; he
Jason works for an American import-export company, located in New York. The main business is dealt between the New York and Geneva in Switzerland; he plans to do an investment to achieve an interest arbitrage for a profit between Swiss Franc (CHF) and U.S. dollar (U.S. $). The information is as the following:
-Interest on Swiss franc is 3.66% in Geneva
-Interest on U.S. $ is 1.054% in New York;
-Swiss Franc spot rate is $ 1.001;
-1-year forward is $ 1.026;
Assuming borrowing rate =lending rate, no bid-ask spread on the spot and forward, What would be Jason's profit using an arbitrage strategy based on a 10,000 $ or CHF transaction with a one-year horizon?
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Essentials Of Corporate Finance
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan
9th International Edition
1259254801, 9781259254802
