Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland.

Question:

Assume that annual interest rates are 8 percent in the United States and 4 percent in Switzerland. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $ 0.60/ Sf.
a. If the forward rate is $ 0.64/Sf, how could the bank arbitrage using a sum of $ 1 million? What is the spread earned?
b. At what forward rate is this arbitrage eliminated?