Answer :
Answer:
The opportunity which is created by arbitrage is to buy the Swiss
Explanation:
The future price in a theoretical manner is as:
= Future Price for contract e^(Interest rate of Switzerland - Interest rate of US) × 2 month / 12 month
where
Future Price for contract is $0.8100
Interest rate of Switzerland is 2%
Interest rate of United States is 5%
It is for 2 month so 2/ 12 month
Putting the values above:
= $0.8100e^(5% - 2%) × 2/12
= $0.8100e^(0.05-0.02) × 2/12
= $0.8040
From the above analysis, it is stated that the actual future price is too high, which suggest that the arbitrageur should bought the short Swiss francs futures and the Swiss francs.