Question 4 (16 Marks) Consider the following two spot rates: CHF/USD 1.2500 and USD/EUR 1.2500 (a) What is the spot rate of CHF/EUR? (2 marks) (b) If HSBC gives a quote of CHF/EUR 1.5500, is there an arbitrage opportunity? (1 mark) If so, which currency is overpriced? (1 mark) And which currency is underpriced? (1 mark) How much (c) Before trading, you want to know whether your strategy makes any sense. return should you expect to make? (2 marks) (d) What trades would you propose if you have USD 100,000? (4 marks) (e) How large is the profit? (2 marks) How much return are you able to make? (2 marks) Does it confirm your expectation in part (c)? (1 mark)