2. Casper Landsten is a foreign exchange trader for a bank in New York. He wants...
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2. Casper Landsten is a foreign exchange trader for a bank in New York. He wants to invest $1 million or its Swiss franc equivalent for a short-term money market investment. He observes the following quotes: spot exchange rate 3-month forward rate U.S. dollar 3-month interest rate Swiss franc e-month interest rate a. What currency will Landsten borrow? SFr1.2810/$ SFr1.2740/$ 4.8% p.a. 3.2% p.a. b. Show the steps Landsten has to take to earn covered interest arbitrage. Describe each action and calculation. c. How much will be the profit? $1.538.46 2. Casper Landsten is a foreign exchange trader for a bank in New York. He wants to invest $1 million or its Swiss franc equivalent for a short-term money market investment. He observes the following quotes: spot exchange rate 3-month forward rate U.S. dollar 3-month interest rate Swiss franc e-month interest rate a. What currency will Landsten borrow? SFr1.2810/$ SFr1.2740/$ 4.8% p.a. 3.2% p.a. b. Show the steps Landsten has to take to earn covered interest arbitrage. Describe each action and calculation. c. How much will be the profit? $1.538.46
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