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You observe the following market: CHF/USD= 1.20 You have $100,000. i $ = 0.25% i CHF = 0.75% F 1y (CHF/USD)= 1.21 a) Does the

You observe the following market:

CHF/USD= 1.20

You have $100,000.

i_$ = 0.25%

i_CHF = 0.75%

F_1y (CHF/USD)= 1.21

a) Does the IRP hold? If not, what should the forward price be for the IRP to hold?

b) How would you exploit this situation?

c) If you set up a currency carry trade, would you be making a profit if the spot price CHF/USD after 1 year is 1.19?

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