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Compute the arbitrage profit in dollars

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Reference no: EM133071983

James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate CHF/USD 1.2051 Six-month forward exchange rate CHF/USD 1.1922 Six-month dollar interest rate 2.5% per year Six-month Swiss franc interest rate 2.0% per year (a) Is the interest rate parity holding? You may ignore transaction costs. (b) Is there an arbitrage opportunity? If yes, show what steps need to be taken to make arbitrage profit. Assuming that James Clark is authorized to work with USD 1,000,000, compute he arbitrage profit in dollars.

Reference no: EM133071983

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