Assume the Following Information: Spot Rate Today of Swiss Franc

question 27

Multiple Choice

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 U.S. dollars
=
9%
​
From the perspective of U.S. investors with $1,000,000, covered interest arbitrage would yield a rate of return of ____ percent.

• A) 5.00
• B) 12.35
• C) 15.50
• D) 14.13
• E) 11.22

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Definitions:

Volume Variance

The difference between planned production volumes and actual production volumes, and its effect on budgeted costs.

Variable Overhead

Costs that fluctuate with changes in production level or activity, such as utilities or materials, within the manufacturing overhead category.

Rate Variance

It is the difference between the actual rate paid for an item or service and the expected (standard or budgeted) rate, often used in budgeting and cost management.

Predetermined Overhead Rate

A rate calculated before a period begins, used to assign overhead costs to products or job orders based on a certain activity, such as machine hours or labor hours.