The current spot exchange rate between the Swiss Franc and the dollar is SF 1.30=$1.00. The 12-month forward exchange rate is SF 1.27=$1.00
1) Is the Swiss franc trading at a premium or a discount on the forward market?
2) What is the percentage amount of this premium or discount?
3) Suppose the 12-month interest rate on Swiss and U.S. bonds were both 5% so that interest parity is violated. Assume that you can freely borrow money from banks in both countries with 5% interest rate. Describe the transactions that you would make some risk-free easy money in this case.