In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404...

In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the U.S. and Switzerland were 0.25% and 0% per annum, respectively, with continuous compounding. The three-month forward exchange rate was1.0300 ($ per franc). What arbitrage strategy was possible? How does your answer change if the exchange rate is 1.0500 ($ per franc).

Expert Solution

jeff jeffy answered 1 year ago

Q6) In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was...

Q6) In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the U.S. and Switzerland were 0.25% and 0% per annum, respectively, with continuous compounding. The three-month forward exchange rate was 1.0300 ($ per franc). What arbitrage strategy was possible?

In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc).

In early 2012, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the United States and Switzerland were 0.25% and 0% per annum, respectively, with continuous compounding. The 3-month forward exchange rate was 1.0300 ($ per franc). What arbitrage strategy was possible? How does your answer change if the forward exchange rate is 1.0500 ($ per franc).

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