The 2-month interest rates in Switzerland and the United States are, respectively, 1% and 2% per annum with continuous compounding. The spot price of the Swiss franc is $1.0500. The futures price for a contract deliverable in 2 months is $1.0500. What arbitrage opportunities does this create? Hint: The theoretical futures price is 1.0500 ∗ ? (???− ???)∗( 2 12) =? ? ? The actual futures price is too ____. This suggests that the arbitrageur should sell ______ for ______ and buy Swiss francs back in the futures market.

The 2-month interest rates in Switzerland and the United States are, respectively, 1% and 2% per annum with continuous compounding. The spot price of the Swiss franc is $1.0500. The futures price for a contract deliverable in 2 months is $1.0500. What arbitrage opportunities does this create? Hint: The theoretical futures price is 1.0500 ∗ ? (???− ???)∗( 2 12) =? ? ? The actual futures price is too . This suggests that the arbitrageur should sell for ____ and buy Swiss francs back in the futures market.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 41QA

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Q3 [Hull, Practice Question 5.22 on p.127]The 2-month interest rates in Switzerland and the United States are, respectively, 1%and 2% per annum with continuous compounding. The spot price of the Swiss francis $1.0500. The futures price for a contract deliverable in 2 months is $1.0500. Whatarbitrage opportunities does this create?
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