Investor would like earn risk free profit using covered interest rate arbitrage assuming 1 million USD capital.
Spot rate 0.85 USD/SF
3 Month forward rate (given) – 0.80 USD/SF. As per covered interest rate arbitrage formula it comes to 0.86 USD/SF.
Q- The investor should borrow how much Swiss Francs and would make a profit of how much USD.
Answer shared is Borrow SF francs to make a profit of $75588.
Can someone explain this.
My closest attempt . I too have the same doubt but manage to solve this somehow