The two-month interest rates in Switzerland and the United States are 2% and 4% per annum with continuous compounding, respectively. The spot price of one Swiss franc is $0.8000. The forward price of a contract deliverable in two months is $0.8200. What transactions can USD-based arbitrageurs make to secure a sure gain in two months?

The two-month interest rates in Switzerland and the United States are 2% and 4% per annum with continuous compounding, respectively. The spot price of one Swiss franc is $0.8000. The forward price of a contract deliverable in two months is $0.8200. What transactions can USD-based arbitrageurs make to secure a sure gain in two months?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 2P

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