Q1 Investing interest rates in Switzerland are 1.75% p.a. and in Canada they are currently at 5% p.a. The CAD/CHF spot rate is 0.6629 (a) Assume no transaction costs. Calculate the theoretical two-year forward rate of the CAD implied by Interest Rate Parity. (b) Now assume the actual two-year forward rate is CAD/CHF 0.6189. What, if any, is the percentage return from engaging in Covered Interest Arbitrage? Assume a transaction cost of 0.3% in the spot and the forward market. Also assume that borrowing rates are 0.8% higher than the investing rates in both countries. Your answer will be either (choose the appropriate one): A. Arbitrage: Calculate the result as a percentage of your initial borrowing, accurate to 4 decimal places, making sure to include any opportunity costs in your calculations). B. No arbitrage: If there is no arbitrage available then show how you are unable to make money through a covered interest arbitrage process