4.UIA .Susan Prescott, using the same values
and assumptions as in the previous question, now decides...
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4.UIA .Susan Prescott, using the same valuesand assumptions as in the previous question, now decides to seekthe full 2.600% return available in US dollars by not covering herforward dollar receipts -- an uncovered interest arbitrage (UIA)transaction. Assess this decision.
Assumptions
Value
SFr. Equivalent
Arbitrage funds available
$1,000,000
SFr.994,000
Spot exchange rate (SFr./$)
                   .9940
3-month forward rate (SFr./$)
                   .9910
Expected spot rate in 90 days (SFr./$)
                   .9940
U.S. dollar 3-month interest rate
2.600% pa
Swiss franc3-month interest rate
1.600% pa
Answer & Explanation
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4.1 Ratings (555 Votes)
Arbitrage fund available 1000000 or SFr 994000 USD Interest Rate 26 per annum Swiss France Interest Rate 13 Spot Rate SFr 0994 and Forward Rate SFr 0991 If Susan
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