Question

In: Finance

Casper​ Landsten-UIA (B).   Casper Landsten is a foreign exchange trader for a bank in New York....

Casper​ Landsten-UIA (B).   Casper Landsten is a foreign exchange trader for a bank in New York. Using the values and assumptions​ below, he decides to seek the full

4.804​% return available in U.S. dollars by not covering his forward dollar receiptslong dash—an uncovered interest arbitrage​ (UIA) transaction. Assess this decision.

Arbitrage funds available

$

950,000

Spot exchange rate (SFr/$)

1.2811

3-month forward rate (SFr/$)

1.2742

Expected spot rate in 90 days (SFr/$)

1.2697

U.S. Dollar annual interest rate

4.804

%

Swiss franc annualinterest rate

3.199

%

The uncovered interest arbitrage​ (UIA) profit amount is​$_____________.

​(Round to the nearest​ cent.)

Solutions

Expert Solution

Use spreadsheet for the ease in computations. Enter values and formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

jeff jeffy answered 1 year ago
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