Note: From the table information, interest rates for both currencies are annual rates. They should be interpreted as U.S. dollar 3-month interest rate : X% "per annum" and Swiss franc 3-month interest rate : Y% "per annum.

Peder

MuellerCIA

(A).Peder Mueller is a foreign exchange trader for a bank in New York. He has

USD1.1

million (or its Swiss franc equivalent) for a short-term money market investment and wonders whether he should invest in U.S. dollars for three months or make a CIA investment in the Swiss franc (CHF). He faces the following quotes:

LOADING...

.

Question content area bottom

Part 1

The CIA profit potential is

enter your response here%,

which tells Casper Landsten he should borrow

Swiss francs

U.S. dollars

and invest in the

higher

lower

yielding currency, the

Swiss franc

U.S. dollar

,

in order to earn covered interest arbitrage (CIA) profits.(Round to three decimal places and select from the drop-down menus.)