QUESTION 15

You work at UBS as a currency trader. Your daily task is to identify and capture arbitrage opportunities in the currency markets. Your annual bonuses are based on the arbitrage profits that you earn over the year. On 12^th of March 2020, you observed the following information. The spot rate of Swiss France was at A$0.60, while the 1-year forward rate was at $0.63. The interbank money markets were quoting 1-year deposits denominated in Swiss Francs at 7%, and 1-year deposits denominated in A$ at 9%.

Was there any arbitrage profit to be made? Explain (1 mark)

What steps need to be done to capture the arbitrage if any? (1.5 marks)

What could prevent you to capture the profit? (0.5 mark)