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    Covered Interest Arbitrage in Annualized Terms

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    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:
    Assumptions
    Value
    SFr. Equivalent
    Arbitrage funds available
    $1,000,000
    SFr. 1,281,000
    Spot exchange rate (SFr./$)
    1.2810
    3-month forward rate (SFr./$)
    1.2740
    U.S. dollar 3-month interest rate
    4.800%
    pa
    Swiss franc3-month interest rate
    3.200%
    pa

    Note that interest rates are expressed in annualized terms!
    A. $1,538.46
    B. SFr 1,538.46
    C. $1936.44
    D. SFr 1936.44

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    https://brainmass.com/business/international-finance/covered-interest-arbitrage-in-annualized-terms-573914

    Solution Summary

    The solution solves a covered interest arbitrage question with step-by-step workings and explanations in an excel file.

    $2.19

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