Show your work, explain the answer for each part and circle your final answers. Using $1,000,000 or its foreign equivalent. 6 month Interest Rate in the US : 3.0% per annum 6 month Interest Rate in the Switzerland: 5.5% per annum Current Spot exchange rate : CHF 1.0825 / $ 6 month Forward exchange rate : CHF 1.0812 / $

6a) Check IRP, show how to determine if there is a covered interest arbitrage opportunity.

6b) Calculate the amount of arbitrage profit in USD that you should be able to make.

6c) Explain in detail the transactions that you would make to equal the arbitrage profit.

6d) Explain how each countrys interest rates will react (increase/decrease) and in which direction the market exchange rates (increase/decrease) will adjust to place the interest rates and currency exchange rates back into equilibrium.