The current spot exchange rate between the swiss franc and, Ask an Expert

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The current spot exchange rate between the Swiss Franc and the dollar is SF 1.30=$1.00. The 12-month forward exchange rate is SF 1.27=$1.00

1) Is the Swiss franc trading at a premium or a discount on the forward market?

2) What is the percentage amount of this premium or discount?

3) Suppose the 12-month interest rate on Swiss and U.S. bonds were both 5% so that interest parity is violated. Assume that you can freely borrow money from banks in both countries with 5% interest rate. Describe the transactions that you would make some risk-free easy money in this case.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92714732

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