Question
Question 1 (a) One year borrowing and deposit interest rates are 12% and 10% respectively in the US and 10% and 8% respectively in Switzerland.
Question 1
(a) One year borrowing and deposit interest rates are 12% and 10% respectively in the US and 10% and 8% respectively in Switzerland. The spot exchange rate for the US dollar is $8 to the Swiss Franc. The 12-month forward rate is $8.5. Suggest a way you might profit from the pricing inconsistency that is presented here, assuming you have no initial investment funds.
(b) One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Spain. The spot exchange rate for the US dollar is $1.50 to the EURO. The 12-month forward rate is $1.55. Assuming you do not have any initial investment funds, suggest a way you might profit from the pricing inconsistency presented above.
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