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Interest arbitrage investment in the swiss

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Jason Smith is a currency trader. He has $10 million (or its Swiss franc equivalent) for a short-term money market investment. He faces the following quotes:

Arbitrage funds available $10,000,000
Spot exchange rate (SFr./$) 1.1050
3-month forward rate (SFr./$) 1.0575
U.S. dollar 3-month interest rate 5.800% p.a.
Swiss franc 3-month interest rate 4.100% p.a.

Make a recommendation if he should invest in U.S. dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. Show the steps and arbitrage profits payoffs. Lack of detailed explanations behind your answers will lead to losses of points

Reference no: EM132540545

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