Mary Argent is a foreign exchange trader for a bank in New York. She has Si milion (or its Swiss franc equivalent) for a short term money market investment and wonders if she should invest in US. dollars for three months, or make a covered imterest arbitrage investment in the Swiss franc. She faces the following quotes: Arbitrage funds avallable Spot exchange rate (SFr./5) 3-month forward rate SF/S) TS. dollar 3-month interest $1,000,000 1.2810 1.2740 4.800% rate Swiss franc3-month Interest 3.200% rate She should Borrow A 780.600 SF francs (SWISS) B. 1281.000 USD (US dollars) C. 1.281.000 SF francs (SWISS) D. THOcos USD (US dollars)

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Mary Argent is a foreign exchange trader for a bank in New York. She has Si million (or its Swiss franc equivalent) for a short term money market investment and wonders if she should invest in U.S.
dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. She faces the following quotes:
$1,000,000
1.2810
Arbitrage funds available
Spot exchange rate (SFr./S)
3-month forward rate
SFr./$)
U.S. dollar 3-month interest
rate
Swiss franc3-month Interest
rate
1.2740
4.800%
3.200%
She should Borrow:
A 780,600 SF franes (SWISS)
B. 1.281.000 USD (US dollars)
C. 1.281.000 SF franes (SWISS)
D. TBO.000 USD (US dollars)
Transcribed Image Text:Mary Argent is a foreign exchange trader for a bank in New York. She has Si million (or its Swiss franc equivalent) for a short term money market investment and wonders if she should invest in U.S. dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. She faces the following quotes: $1,000,000 1.2810 Arbitrage funds available Spot exchange rate (SFr./S) 3-month forward rate SFr./$) U.S. dollar 3-month interest rate Swiss franc3-month Interest rate 1.2740 4.800% 3.200% She should Borrow: A 780,600 SF franes (SWISS) B. 1.281.000 USD (US dollars) C. 1.281.000 SF franes (SWISS) D. TBO.000 USD (US dollars)
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