Casper Landsten, using the same values and assumptions as in Problem 12, decides to seek the full

Question:

Casper Landsten, using the same values and assumptions as in Problem 12, decides to seek the full 4.800% return available in U.S. dollars by not covering his forward dollar receipts- an uncovered interest arbitrage (UIA) transaction. Assess this decision.

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...