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Assume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate in the U.S.=2% 1-year...

Assume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate in the U.S.=2% 1-year deposit rate in Switzerland =1.5% 1-year forward rate of Swiss francs=$.7430 Spot rate of Swiss franc =$0.75 Given this information, are there arbitrage profits for American or Swiss investors? How much? Assume $1 Million Arbitrage Capital in U.S. dollars (or its equivalent in Swiss Francs).

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Answer #1
Given
Capital 10,00,000.00 USD
US Swiss
1-year deposit rate 2% 1.50%
Spot rate of swiss franc 0.75
forward rate of swiss franc 0.743
Using internation fischer relation
the forward rate of swiss franc should be =0.75*1.02/1.015
0.753695
forward rate given 0.743
So there is a mismatch between forward rates
And the total profit out of arbitrage opportunity 0.0106946 * 10,00,000.00
10,694.58 USD

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