Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million

Question:

Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent) for a short term money market investment and wonders whether he should invest in U.S. dollars for three months or make a CIA investment in the Swiss franc. He faces the following quotes:

Arbitrage funds available.....................$1,000,000

Spot exchange rate (SFr/$).........................1.2810

3-month forward rate (SFr/$)......................1.2740

U.S. dollar 3-month interest rate..................4.800%

Swiss franc 3-month interest rate.................3.200%

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...