Question
Spot exchange rate Six-month forward exchange rate Six-month Dollar interest rate Six-month Swiss franc interest rate SFr1.2066 per $ SFr1.1937 per $ 2.5%
Spot exchange rate\ Six-month forward exchange rate\ Six-month Dollar interest rate\ Six-month Swiss franc interest rate\ SFr1.2066 per
$
\ SFr1.1937 per
$
\
2.5%
per year\
2.0%
per year\ Required:\ a. Is the interes) rate parity holding? You may ignore transaction costs.\ b. What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with
$1,000,000
. Compute the arbitrage profit.\ Complete this question by entering your answers in the tabs below.\ Required
A
\ Required B\ What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with
$1,000,000
. Compute the arbitrage profit.\ Note: Round off the final answer to nearest whole dollar.\ What steps should be taken to make arbitrage profit?\ Borrow at the dollar interest rate and invest at the Swiss franc rate. Hedge exchange rate risk by selling Swiss francs forward.\
$
\ 6,595
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