Question: 4. UIA .Susan Prescott, using the same values and assumptions as in the previous question, now decides to seek the full 2.600% return available in

4.UIA .Susan Prescott, using the same values and assumptions as in the previous question, now decides to seek the full 2.600% return available in US dollars by not covering her forward dollar receipts -- an uncovered interest arbitrage (UIA) transaction. Assess this decision.

Assumptions

Value

SFr. Equivalent

Arbitrage funds available

$1,000,000

SFr.994,000

Spot exchange rate (SFr./$)

.9940

3-month forward rate (SFr./$)

.9910

Expected spot rate in 90 days (SFr./$)

.9940

U.S. dollar 3-month interest rate

2.600% pa

Swiss franc3-month interest rate

1.600% pa

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