Jason is a foreign exchange trader for a bank in new york, Ask an Expert

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Jason is a foreign exchange trader for a bank in New York. He can borrow $1 million or Sfr 1,402,000 for a short term money market investment and wonders if he should invest in U.S. dollars for three months, or invest in Swiss franc. He faces the following quotes:

Assumptions

Value

Arbitrage funds available $1,000,000 or Sfr 1,402,000

Spot exchange rate (SFr./$) 1.4020

3-month forward rate (SFr./$) 1.3500

U.S. dollar 3-month interest rate (p.a.) 4.80%

Swiss franc3-month interest rate (p.a.) 4.40%

How much money can Jason make using Covered Interest Parity (CIP)? First, you must show whether you invest in US or in Switzerland.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92797076

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