On June 1, the 4-month interest rates in Switzerland and the United States were, respectively,...
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Accounting
On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2% and 5% per annum with discrete compouding. The spot price of the Swiss franc was $0.8000/CHF. You took a short position of a CHF forward, CHF 100,000, delivery on October 1. One month later on July 1, three-month interest rates in Switzerland and the United States were, respectively, 2.5% and 4.5% per annum with discrete compouding. The spot exchange rate on the Swiss franc is $0.8020/CHF. On July 1, what is the value of your short position you entered on June 1? Assume the forward contract prices are arbitrage free prices.
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