Assume the following information: U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 10% 1-year deposit rate offered on Swiss francs = 13.5% 1-year forward rate of Swiss francs = $1.26 Spot rate of Swiss franc = $1.30 Does IRP hold? Is there an arbitrage opportunity?
Assume the following information: U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 10% 1-year deposit rate offered on Swiss francs = 13.5% 1-year forward rate of Swiss francs = $1.26 Spot rate of Swiss franc = $1.30 Does IRP hold? Is there an arbitrage opportunity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Assume the following information:
U.S. investors have $1,000,000 to invest:
|
1-year deposit rate offered by U.S. banks |
= |
10% |
|
1-year deposit rate offered on Swiss francs |
= |
13.5% |
|
1-year forward rate of Swiss francs |
= |
$1.26 |
|
Spot rate of Swiss franc |
= |
$1.30 |
Does IRP hold? Is there an arbitrage opportunity?
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