Lou Peters is a foreign exchange trader for a bank in New York. He has $$1$ million $($or its

Swiss franc equivalent$)$ for a short$-$term money market investment and wonders if he should

invest in U$.$S$.$ dollars for three months, or make a covered interest arbitrage investment in

the Swiss franc. He faces the following quotes:

Spot exchange rate SF $1\mathrm{.}3269/$$

Three$-$month forward rate SF $1\mathrm{.}3017/$$

U$.$S$.$ three$-$month interest rate $5\mathrm{.}630\%$ per annum

Swiss three$-$month interest rate $4\mathrm{.}250\%$ per annum

$1)$ Calculate forward premium $($or discount$)?$ Following the rule of thumb, should Lou invest in U$.$S$.$ dollars for three months, or make a covered interest arbitrage investment in the Swiss franc.?

$2)$ Where do you recommend Lou invests, and why?

$3)$ What is Lou rate of return, on an annual basis, on this covered interest arbitrage investment?