Casper Landsten-CIA (A). Casper Landsten is a foreign exchange trader for a bank in New...
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Casper Landsten-CIA (A). Casper Landsten is a foreign exchange trader for a bank in New York. He has $ million (or its Swiss franc equivalent) for a short term money market investment and wonders if he should invest in U.S. dollars for three months, or make a CIA investment in the Swiss franc. He faces the following quotes:
Arbitrage funds available $ 950,000
Spot exchange rate (SFr/$) 1.2808
3-month forward rate (SFr/$) 1.2742
U.S. Dollar annual interest rate 4.803 %
Swiss franc annual interest rate 3.201 %
a. The CIA profit potential is nothing%, which tells Casper Landsten he should borrow Swiss francs U.S. dollars and invest in the higher lower yielding currency, the Swiss franc U.S. dollar , in order to earn covered interest arbitrage (CIA) profits.
b. Calculate the CIA profit amount
I understand part A, I don't understand part B.
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