a a a 6. Luis Pinzon is a foreign exchange trader for a bank in New York. He has $1 million for a short term money market investment and wonders if he should invest in U.S. dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. He faces the following quotes: Arbitrage funds available Spot exchange rate (SFr./$) 3-month forward rate (SFr./S) U.S. dollar 3-month interest rate Swiss franc3-month interest rate $1,000,000 1.2810 1.2740 4.8% per annum (1.6% per quarter) 3.2% per annum (0.8% per quarter) a. Is there a covered interest arbitrage opportunity? b. What is the total proceed at the end of the CIA arbitrage? Hint: 1. Use IRP equation to check if the equality holds. 2. If IRP does not hold, then engage in US dollar CIA (covered interest arbitrage) transactions