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Problem 6 The following indirect quotation of Swiss franc to British pound is given: SFr / = 2 . 2 7 1 4 . The

Problem 6
The following indirect quotation of Swiss franc to British pound is given: SFr /=2.2714. The
1-year futures contract rate is set at the level of 2.2784. Interest rates in Britain and Switzerland
are 4.7% and 4% respectively. Is there an interest rate arbitrage opportunity in this case?
Describe the arbitrage transactions step-by-step. What the annual interest rate in Switzerland
should be to disable the interest rate arbitrage?
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