Problem:
You are an expatriate working for Bank America in Hong Kong, and observe the following prices. Formulate an arbitrage strategy to profit from the situation.
- Swiss Franc per Dollar exchange rate is 1.30 spot and 1.35 for 180-day forward.
- Swiss interest rate is 6.00% compounded daily.
- U.S. stock market index is 1500 today.
- At today's level of the index, the average annual dividend yield on the stocks in the index is 3% (for simplicity, assume the dividends for your six-month holding period will all be paid at the end of 180 days).
- The U.S. stock market index 180-day futures price is 1490