Solved: Rate of return under covered interest arbitrage, Finance Basics

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Rate of return under covered interest arbitrage

Problem:

Assume the following information:

Spot Rate today of Swiss franc = $.60
1-year forward rate as of today for Swiss franc = $.63
Expected spot rate 1-year from now = $.64
Rate on 1-year deposits denominated in Swiss francs = 7%
Rate on 1-year deposits denominated in US dollars = 9%

From the perspective of US investors with $1,000,000, what would be rate of return under covered interest arbitrage?

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Finance Basics: Rate of return under covered interest arbitrage

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