Homework:Chapter 6 Homework

Question 2, Problem 6-12 (algorithmic)

Part 2 of 2

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Part 1

Casper Landsten-CIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. He has

$0.95

million (or its Swiss franc equivalent) for a short term money market investment and wonders if 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	$	950,000
Spot exchange rate (SFr/$)		1.2811
3-month forward rate (SFr/$)		1.2741
U.S. Dollar annual interest rate		4.803	%
Swiss franc annual interest rate		3.202	%

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Part 1

The CIA profit potential is

. 597.597%,

which tells Casper Landsten he should borrow

U.S. dollars

and invest in the

lower

yielding currency, the

Swiss franc

, in order to earn covered interest arbitrage (CIA) profits.(Round to three decimal places and select from the drop-down menus.)

Part 2

The CIA profit amount is

$enter your response here.

(Round to the nearest cent.)