Should the dealer invest in u.s dollars or swiss francs

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Reference no: EM13293003

An Exchange dealer has $1,000,000.00 to invest for 3 months. Given the following information,

Spot Exchange rate: SFr 1.301/$
3 month forward rate: SFr 1.292/$

3 month U.S. interest rate: 4.5% (1.5% per quarter)
3 month Swiss interest rate: 3.0% (1% per quarter)

a) should the dealer invest in U.S dollars or Swiss Francs? Why?

b) What is the dealers rate of return on an annual basis?

Reference no: EM13293003

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