Considering the following the us continuously compounded, Ask an Expert

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Considering the following, the US continuously compounded risk free rate is 5% and Swiss risk free rate is 3%, and the currency spot exchange rate is $0.89 USD per CHF (Swiss Franc).

A. Using the Currency continuous pricing model, what is the appropriate “Interest Rate Parity” forward price on a contract expiring in 3 months?

B. For a 3-month forward contract, if a dealer quotes a forward price on USD per CHF as $0.90 per CHF, then answer the following two questions:

a. Is the dealers’ quote under or overpriced?

To take advantage of the situation, what should an arbitrageur do to make a profit?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92790422

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