Is there covered interest arbitrage opportunity

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Mary Smyth is a foreign exchange dealer for a bank in New York City. She has $1,000,000 for a short-term money market investment and wonders if she can execute a covered interest arbitrage investment in the Swiss Franc. She face the following rates:

Spot exchange rate: SF1.1520/$

3-month forward rate: SF1.1472/$ 3-month

U.S. interest rate: 4.5% per annum (1.125% quarterly)

3-month Swiss interest rate: 3.2% per annum (0.8% quarterly)

a. Is there a covered interest arbitrage opportunity?

b. What would be the total amount of Swiss francs (principal plus interest) in her Swiss bank account after 3-month deposit period?

c. What would be her final total US dollar amount?

Reference no: EM131898785

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