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Expound on interest parity theory

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1) The ER between the Swiss franc and the US dollar is one to one in the spot market. The interest rates in Switzerland and the US are .01 and .03 respectively. Swiss franc. What kind of arbitrage will induce a profit for you, if the forward rate is .96 Swiss francs equal $1? Assume you start with $1 million.

2) Expound on interest parity theory in the aforementioned context. Is the above situation sustainable?

Reference no: EM133070568

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