Peder Mueller is a foreign exchange trader for a bank in New York. He has USD 1.1 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:

Arbitrage funds available (USD) 1,100,000 Spot exchange rate (CHF=USD1.00) 1.2807 3-month forward rate (CHF=USD1.00) 1.2741 U.S. dollar 3-month interest rate (%) 4.799 Swiss franc 3-month interest rate (%) 3.195

Question 1

A. What is the Cover Interest Arbitrage Potential (%)?

B. Therefore, Casper should borrow _____ and invest in the _____ currency, the _______ in order to earned covered interest arbitrage (CIA) profits.