Assume the following information:U.S. investors have $1,000,000 to invest 1-year deposit rate in the US."2% 1-year...

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Assume the following information:U.S. investors have $1,000,000 to invest 1-year deposit rate in the US.2% 1-year deposit rate in Switzerland-1.5% 1-year forward rate of Swiss francs $.7430 Spot rate of Swiss franc $0.75 Given this information, are there arbitrage profits for American or Swiss investors? How much? Assume $1 Million Arbitrage Capital in U.S. dollars (or its equivalent in Swiss Francs). 1. a. Arb. Profits to Americans from investing in Switzerland of $23,754.23 USD b. Arb. Losses to Americans from investing in Switzerland of -$21,221.68 c. Arb. Losses to Swiss investors from investing in U.S.; Loss -42,396.45 Swiss Francs d. Arb. Profits to Swiss Investors from investing in U.S; Profit-39,479.58 Swiss Francs

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Answer 1

Answer #1

Given
	Capital	10,00,000.00	USD

		US	Swiss
	1-year deposit rate	2%	1.50%
	Spot rate of swiss franc	0.75
	forward rate of swiss franc	0.743


	Using internation fischer relation

	the forward rate of swiss franc should be		=0.75*1.02/1.015

			0.753695

	forward rate given		0.743


	So there is a mismatch between forward rates

	And the total profit out of arbitrage opportunity			0.0106946	*	10,00,000.00

				10,694.58	USD

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Answer 2

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