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Assignment on interest rate parity

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Reference no: EM132918961

Interest Rate Parity: It is expected from the forward rate quotations that the Swiss franc will appreciate over the next 12 months. All appropriate quotes are given below:

Spot rate: $0.8200 - $0.8300 / SF

12 month Forward rate: $0.8370 - $0.8460 / SF

U.S. interest rate: 3.0% - 3.4% annualized

Swiss interest rate: 2.4% - 2.8% annualized

If you have access to a line of credit of SF 1 million, based on Interest Rate Parity, can you make arbitrage profit by borrowing money in Switzerland based on quotes above? Show all calculations.

What will be your profit or loss from this investment strategy?

Reference no: EM132918961

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