Question - You are an investment manager in Switzerland. You see different interest rates around the world and your exchange trading team (as always staffed by Stern alums) has provided you with the current spot rate and an expected future spot rate between the Swiss and Italian currencies.
Current spot exchange rate is 0.57 Euros per Swiss Franc
The 1 year interest rate on the Euros denominated bank deposit is 2.5%
The 1 year interest rate on the Swiss Franc-denominated bank deposit is 3.0%
Expected future spot rate in 30 days is 0.56 Euros per Swiss Franc
Where will you earn the higher rate of return - Eurozone or Switzerland?