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Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent) for a short term money market investment and wonders whether he should invest in U.S. dollars for three months or make a CIA investment in the Swiss franc. He faces the following quotes: Arbitrage funds available.....................$1,000,000 Spot exchange rate (SFr/$).........................1.2810 3-month forward rate (SFr/$)......................1.2740 U.S. dollar 3-month interest rate..................4.800% Swiss franc 3-month interest rate.................3.200%
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