Consider the Following If the Market Futures Price Is 1

question 62

Multiple Choice

Consider the following: $$\begin{array}{l}\begin{array} { l l r } \text {Risk-free rate in Canada }&0.04 \text { year } \\\text {Risk-free rate in Switzerland }&0.03 / \text { year } \\\text {Spot exchange rate }&1.67 \mathrm{SF} / \$\end{array}\end{array}$$
If the market futures price is 1.69 SF/$,how could you arbitrage?

• A) Borrow Swiss Franks in Switzerland,convert them to dollars,lend the proceeds in Canada and enter futures positions to purchase Swiss Franks at the current futures price.
• B) Borrow Canadian dollars in Canada,convert them to Swiss Franks,lend the proceeds in Switzerland and enter futures positions to sell Swiss Franks at the current futures price.
• C) Borrow Canadian dollars in Canada and invest them in Canada and enter futures positions to purchase Swiss Franks at the current futures price.
• D) Borrow Swiss Franks in Switzerland and invest them there,then convert back to Canadian dollars at the spot price.
• E) There is no arbitrage opportunity.

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Definitions:

Work Sampling

A statistical technique used to estimate the proportion of time spent by workers on various tasks, through random observations over a period.

Acceptable Error

The degree of deviation from a standard or accurate value that is considered tolerable or permissible in computations or measurements.

Sample Proportion

The fraction of a sample that exhibits a particular attribute or characteristic.

Predetermined Time Standards

Benchmarks or norms established in advance for the completion of tasks based on analyses of work measurements.