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Business, 24.03.2020 04:28 jzoda7318

A US investor sees an arbitrage opportunity in the currency markets. The spot exchange rate between the Swiss Franc and US Dollar is $1.0404 (per CHF). Assume the continuously compounded interest rates in the US and Switzerland are 0.25% and 0%, respectively. The 3-month currency forward price is $1.0300 (per CHF).a) What is the theoretically correct forward price?
b) What is the investor’s total profit (in CHF), assuming she begins by borrowing 1,000 CHF?

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