Oakwood Financial Co$.$ is a U$.$S$.$ firm that executes a carry trade in which it borrows Swiss

francs $($CHF$)($where interest rates are currently low$)$ and invests in Canadian dollars $($CAD$)$

$($where interest rates are currently high$).$ Oakwood uses $$150,000$ of its own funds and

borrows an additional $500,000$ Swiss francs. It will pay $0\mathrm{.}4\%$ on its Swiss francs borrowed

for the next $6$ months and will earn $1\mathrm{.}5\%$ on funds invested in Canadian dollars. Assume

that the Swiss franc's spot rate is $$1\mathrm{.}05,$ and that the Canadian dollar's spot rate is $$0\mathrm{.}80$

$($so the Canadian dollar is worth $0\mathrm{.}7619$ Swiss francs at this time$).$ Oakwood uses today's

spot rate as its best guess of the spot rate six months from now.

a$)$ Calculate Oakwood's expected profits from its carry trade.

b$)$ Suppose the Swiss franc appreciated by $2$ percent over the $6-$month period against

both the Canadian dollar and the U$.$S$.$ dollar; this means that, at the end of the

investment period, the Swiss franc is worth $$1\mathrm{.}071,$ and a Canadian dollar is worth

$0\mathrm{.}7469$ Swiss francs. Under these conditions, what is Oakwood's expected profits

from its carry trade?