Mary Joe has a credit line of $1,000,000 (or equivalent in major currencies) for arbitrage. She had access to the following rates, and she managed to generate CIA profits. Replicate her arbitrage and calculate her profits based on the following rates:
Arbitrage funds available
Spot exchange rate (SFr./$)
3-month forward rate (SFr./$)
U.S. dollar 3-month interest rate
Swiss franc3-month interest rate
Note that interest rates are expressed in annualized terms!
B. SFr 1,538.46
D. SFr 1936.44
The solution solves a covered interest arbitrage question with step-by-step workings and explanations in an excel file.