Assume the Following Information

question 37

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 1year deposits denominated in Swiss francs = 7%
Rate on 1year 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 ______%.

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

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Definitions:

Inequality

A mathematical statement indicating that two expressions are not equal, employing symbols such as <, >, ≤, or ≥ to show the relationship.

Absolute Value Inequality

An inequality that involves the absolute value of a variable expression, requiring consideration of both positive and negative solutions.

Set Notation

A mathematical notation used for describing a collection of distinct objects, typically in the form of {a, b, c,...}.

Solution

The value or values that satisfy an equation, inequality, or system of equations.