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Explain arbitrage trading strategy

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Reference no: EM132818013

Assume you notice the following information. Complete the steps for an arbitrage trading strategy by choosing the appropriate option for each step.

-Spot (CHF/USD)=1.50 : 1
-1 Year Forward (CHF/USD) = 1.60 : 1
-1 Year Swiss interest rate of 8% in Swiss francs (CHF)
-1 Year US interest rate of 4% in US Dollars (USD)

-You would borrow in this currency: a. the Swiss Franc, b. a 3rd country's with a high APR, c. prevailing spot rate in year 1, d. CHF 1.60: 1, e. a 3rd country with a low APR, f. US dollar, OR g. CHF 1.50:1 ?

-You would then convert to this currency: a. the Swiss Franc, b. a 3rd country's with a high APR, c. prevailing spot rate in year 1, d. CHF 1.60: 1, e. a 3rd country with a low APR, f. US dollar, OR g. CHF 1.50:1 ?

-In 1 year, you would convert loan proceeds to this currency: a. the Swiss Franc, b. a 3rd country's with a high APR, c. prevailing spot rate in year 1, d. CHF 1.60: 1, e. a 3rd country with a low APR, f. US dollar, OR g. CHF 1.50:1 ?

-You would convert the loan proceeds at this exchange rate: a. the Swiss Franc, b. a 3rd country's with a high APR, c. prevailing spot rate in year 1, d. CHF 1.60: 1, e. a 3rd country with a low APR, f. US dollar, OR g. CHF 1.50:1 ?

Reference no: EM132818013

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